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Thread: Tax on purchases and sales of same stock

  1. #1
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    Tax on purchases and sales of same stock

    My understanding of Federal tax law is that if you make several purchases of a stock and then sell part of your shares, your profit (or loss) is computed assuming the shares you sold were the first ones that you bought. I think most brokerages provide statements that makes such profit straightforward to compute. But suppose you buy and sell the same stock in two different brokerage accounts (e.g. a retail broker and an online broker). Is the profit from selling shares in one account computed as if the shares were the first purchased in that account? - or must you consider purchases made in both accounts?

  2. #2
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    When you sell the shares you can chose first in or last in as then ones you are selling. If you hold them for one year or longer they are taxed at a lower long term capital gain rate. If under one year old they are taxed at your full earned income rate.
    If you sell some that would not be long term anyway it is better to sell the newest ones first. That way they others can become long term sooner.
    Note taxes are only calculated on the price change compared to the buy price. If you sell for what you paid there is no tax.
    Bill D.

  3. #3
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    You can choose how it's computed. You tell the brokerage FIFO or there's a way to average. You would make this choice at each brokerage where you buy and sell stocks.

    If you go the FIFO route you have to have a record of every purchase made, whether it's dividends being reinvested or with a cash buy. I believe the brokerages must supply you with this information, but they didn't always have to. I'm not sure of the year the law changed, but your accountant or tax preparer can advise.

    You should get a 1099 from every brokerage you do business with. And the information you need for tax preparation is on the 1099.
    Confidence: The feeling you experience before you fully understand the situation

  4. #4
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    There are some special rules if you sell then buy back the same stock within something like 60 days. It is called a "wash sale" and has special tax rules.
    BILL D

  5. #5
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    Quote Originally Posted by Bill Dufour View Post
    There are some special rules if you sell then buy back the same stock within something like 60 days. It is called a "wash sale" and has special tax rules.
    BILL D
    It's 30 days.
    - Its not that Im so smart, its just that I stay with problems longer. Albert Einstein
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  6. #6
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    Quote Originally Posted by Stephen Tashiro View Post
    ... But suppose you buy and sell the same stock in two different brokerage accounts (e.g. a retail broker and an online broker). Is the profit from selling shares in one account computed as if the shares were the first purchased in that account? - or must you consider purchases made in both accounts?
    Pretty sure the scope of the choice of the Cost Basis Method is per transaction. So, no there is no consideration across accounts.

    Not sure if the Cost Basis Methods offered to account owners differs from brokerage to brokerage. Schwab offers 6 different methods, including specifying a specific lot of stock.
    Brian

    "Any intelligent fool can make things bigger or more complicated...it takes a touch of genius and a lot of courage to move in the opposite direction." - E.F. Schumacher

  7. #7
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    Quote Originally Posted by Alan Lightstone View Post
    It's 30 days.
    It's 30 days either side of the sale date - so a 60 (or 61) day window. The 30 days before would come into play if you bought more of a stock you already own, then sell some or all of what you already had at a loss.

  8. #8
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    You need a knowledgeable tax advisor. I think Bill for sure has his feces in sequence on this one, likely Gary, Alan and Brian too. When I can I prefer to sell stocks in the same block size I bought them, so I have a purchase receipt and a sell receipt that match for number of shares. When I don't have that, I hire a pro and I need beer after they tell me what they did to make it OK.

  9. #9
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    A long term capital gain is a stock held for at least 365 days. Tax rate is 0% for a couple earning 80,000 or less, 15% from 80,000 to 501,000, 20% above that income level. rounded off, old rates.
    Short term gain is your regular income tax rate which for most is more then 20%. So for many it pays to cash in your stocks over several tax years to pay for a big purchase like a shop or retirement house.
    Bill D
    Those income limits are not just the stock sales they are all income added up so pay checks plus stock sales. Most here will have no poblems staying below $500,000 per year total income.
    Last edited by Bill Dufour; 02-04-2022 at 1:36 AM.

  10. #10
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    If you have owned an Roth IRA for at least five years all withdrawls from it are tax free if you are at least 59+1/2 years old. It does not have to be the same IRA you opened that long ago you just have to have had an ira somewhere for 5 years. I think there is some way to withdraw it to buy a house but pay a penalty. Not recommended. Maybe college costs if your are laid off?
    If you can afford the taxes a roth ira is far better longterm. My regular IRa I have to pay taxes on the original money and 40 years of returns if I take any out. Long term short term all taxed the same as regular income.
    Bill D

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