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Author: pattekar Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Specific Id, Avg Cost and Change in Acct. Method Date: 1/17/2002 7:25 PM
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Hi,

First, an observation:

I purchase two lots of mutual fund shares:

1) 100 shares @ $20/share (this lot now qualifies for LTCG)
2) 100 shares @ $10/share (this lot is still short term).


If I sell all 200 shares today at $25/share, I will realize $500
long-term capital gain and $1500 short-term capital gain. This would
be true weather I use FIFO, or Specific Id. or Average Cost - Double
Category.

But instead, if I want to use Average Cost - Single Category, the
average cost would be $15/share. Therefore, using this method, I would
realize $1000 long-term capital gain and $1000 short-term capital
gain, making this method more beneficial.

Until now, I was under the impression that Specific Identification is
always the best method to calculate capital gain/loss, so I found the
above quite interesting.


Now, my question: I owned a fund in which I purchased several lots of
shares at different prices. Then, I decided to close my position in
this fund, and sold all shares in a single transaction. Since I was
closing my position, Specific Identification would have been the same
as FIFO, so I didn't specify shares to be sold. Now, I find that my
situation is like the above example, and Avg. Cost - Single Category
is more beneficial to me. Since this is my first sale of the fund, I
can now choose between FIFO and Avg. Cost - Single Category. If I use
avg. cost now, will I be stuck with this method if and when I reacquire a
position in this fund at a future date ? In that case, under what conditions will the
IRS approve my request for change in accounting method to switch back
to Specific Identification ?

Thanks,

-Amol.
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