Tax lot selection in Solo FidFolios
Summary of User’s Concerns and Solutions:
- Main Problem: The user, Hanuman, is seeking clarification on the tax lot selection algorithm used when selling shares from a basket in Solo Fidfolios, as well as whether this algorithm can be configured.
- Solution Provided: Fidelity’s default disposal method for Solo Fidfolios is First-In-First-Out (FIFO), but users can change this method through their account settings.
- Additional Information: Users can own the same stocks inside and outside of their baskets, and the disposal method applied will depend on whether they are using the Solo Fidfolios trading feature or a standard trade ticket.
- Recommendation: Fidelity suggests consulting a qualified tax professional before making changes to the disposal method.
Here’s the full thread
I could not find any answer to this in the Solo Fidfolio FAQ regarding tax lot selection in Solo Fidfolios.
In M1 they automatically use a tax optimized selection algorithm in the back end that selected tax lots based on cost and short term vs. long term capital gains for sell orders. In TDA they offer a similar tax lot selection algorithm (in addition to the standard FIFO, LIFO, etc.) for sell orders that they call a tax efficient loss harvester with the following tax lot selection ordering:
Short-term loss– descending order by cost per share (highest to lowest), and as a result, taking the biggest short-term losses first
Long-term loss– descending order by cost per share
Long-term gain– descending order by cost per share (highest to lowest), and as a result, taking the smallest long-term gain first
Short-term gain– descending order by cost per share
What tax lot selection algorithm is used when selling shares from a basket or rebalancing a basket in a Solo Fidfolio?
Is the tax lot selection algorithm configurable for a Solo Fidfolio?
Thanks for reaching out to us.
Let me jump in here with some information about our Solo FidFolios. The account-level default disposal method is applied to the baskets within the account. The standard default for an account is First-In-First-Out (FIFO), unless it is changed. We offer variety of disposal methods you can choose from, and if you would like to update your disposal method you can visit the link below.
Verify your cost basis disposal method (login required): https://oltx.fidelity.com/ftgw/fbc/ofaccounts/convertCostBasisMethods
We suggest speaking with a qualified tax professional prior to making any changes to your disposal method.
In case you weren’t aware, accounts enrolled in Solo Fidfolios have the ability to invest in multiple baskets, or to trade independent of the created baskets. This means you can simultaneously own the same stocks inside and outside of your basket. I bring this up to mention that there might be more than one trading feature and the disposal will vary depending on which method you use.
When you use the Solo Fidfolios trading feature within the basket, your account level disposal method is only used to sell the securities within the basket, regardless if you own the same stock independently. This means if you hold the same stock inside and outside of your basket, it may result in specific shares being sold.
Example: Let’s say you own 20 shares of ABC Inc. stock purchased through the standard trade ticket. You then purchase 30 additional shares through the basket. If you use the FIFO method through the Solo Fidfolios trading feature to sell 10 shares, 10 shares are sold from your lot of 30 even though they were bought after the original 20 shares; however, if you use the standard ticket to sell 10 shares using the FIFO method, 10 shares are sold from the original lot of 20 shares.
Review our Solo Fidfolios FAQs for more information: https://www.fidelity.com/direct-indexing/customized-investing/faqs 🟢
Thank you. Exactly what I was after. This answer is actually better than I hoped because I have a whole portfolio of shares that I brought over from M1 that are still awaiting the desired FidFolio feature to allow them to be transferred into my FidFolio basket. Having the tax lot selection span all the shares inside and outside the basket is good pending thr ability to move shares into the basket.