Cost Basis Methodology

bruce · Post by **bruce** » Sat Aug 15, 2009 4:44 pm

I am a US citizen living in Canada and want to better understand what choices I need to make (if any) regarding cost basis on stocks that I sell.

As I understand it, there is no choice per the CRA and I must use ACB for all sales of stock. However, the US allows several methods including FIFO (the default, I believe), specific share identification, or ACB.

If I sell stock through a Canadian broker, would the IRS just assume that I used ACB (since that's the Canadian default)? Or would I end up having to track in both ACB (for CRA) and FIFO (for IRS)? It seems to me that using ACB for US taxes would make sense just to be consistent with Canadian cost basis and reduce the odds of double-taxation. (And I don't see how I could even do specific share identification with a Cdn broker since they don't offer that tracking.)

Thanks.

nelsona · Post by **nelsona** » Sun Aug 16, 2009 7:20 am

as you suspect, it is unlikley that you can use specific share mehod with a Cdn broker.

You are free to use the other methods as you see fit for US purposes.

bruce · Post by **bruce** » Sun Aug 16, 2009 8:40 am

If I decide to use ACB on my US taxes, do I need to advise the IRS of this decision in any manner? Or should I just track & report using ACB given that the Cdn broker default would be ACB and assume that this would be acceptable to IRS?

Thank you.

nelsona · Post by **nelsona** » Sun Aug 16, 2009 1:20 pm

In reviewing IRS Pub 550 and 551, it appears that one cannot use Avg Cost for stocks. If one cannot adequately identify the shares that they are selling (which would be your situtaion) one MUST use FIFO.

bruce · Post by **bruce** » Sun Aug 16, 2009 4:11 pm

Wow! I just pulled up Pub 550 and it is pretty clear that FIFO would be mandatory in my case. That's quite a pain from an accounting perspective. Not only do I need to track cost basis in 2 currencies but also use different methodologies. And if I'm not careful, I could have quite a mis-match on stocks purchased over many years with high volatility. I suppose the upside is that there's less concern about short-term capital gains in the US since I'll always be selling the oldest ones first.

Thanks again for your help!