Cost Basis Method at Schwab

Mona

I am looking to set up Spec.ID as my default cost basis method. Schwab does not seem to have that method. They list FIFO, LIFO, High Cost, Low Cost, and Tax Lot Optimizer. I would want to realize my largest losses first, then smaller losses, and lastly gains. It appears that Schwab's Tax Loss Optimizer will meet that objective.

Order of Sales for the Tax Lot Optimizer

Short-term Losses Lots reflecting short-term losses are sold first, from greatest short-term loss to least short-term loss.
Long-term Losses Lots reflecting long-term losses are sold, from greatest long-term loss to least long-term loss.
Short-term, no gains nor losses Short-term lots that reflect no gain nor loss
Long-term, no gains nor losses Long-term lots that reflect no gain nor loss
Long-term Gains Lots reflecting long-term gains from least long-term gain to greatest long-term gain.
Short-term Gains Lots reflecting short-terms gains from least short-term gain to greatest short-term gain

Does Schwab have Spec.ID where I can pick the lots to sell?

msf

All methods aside from average cost (for mutual funds) are specific ID (what Schwab calls Identified Cost Method). The specific shares that are to be sold are identified and their actual cost used in determining gain or loss.

That's the way things work regardless of institution. The question is how those specific shares are identified.

An investor can always (except when using average cost) specify which shares are being sold at the time the trade is placed (or anytime up until settlement). However, if the investor doesn't identify the specific shares, Schwab still has to identify them, somehow.

That's where these other methods come in. You're giving Schwab an algorithm to select the shares you're selling if you don't identify those shares yourself.

Schwab, like most institutions, sets the default method of selecting shares to FIFO for everything but mutual funds. But that's used only if you don't identify the shares you're selling at the time of sale.

For mutual funds, again like most institutions, it sets the default to average cost. If you want to change from average cost to something else, you have to do this via paper form. At least you can send that paper to Schwab electronically.

yogibearbull

After stock or ETF order execution but before the settlement, Schwab does offer a screen of lots showing the default sell lot selection that can be overridden. Apparently, to inform the broker before the sale means that before the settlement - or, that's how Schwab interprets it.

Rules for mutual funds are different than those for Stocks & ETFs.

msf

It's not just Schwab's interpretation. That's the way the IRS interprets time of identification - up to the time of delivery (settlement).

Time for making identification. For purposes of this paragraph (c), an adequate identification of stock is made at the time of sale, transfer, delivery, or distribution if the identification is made no later than the earlier of the settlement date or the time for settlement required by Rule 15c6-1 under the Securities Exchange Act of 1934, 17 CFR 240.15c6-1 (or its successor)

26 CFR § 1.1012-1(c)(8)

Trade date is the day your order to buy or sell a security is executed; settlement date is the day your order is finalized and on which funds and the securities must be delivered.

FINRA, Understanding Settlement Cycles