Change the cost basis method on your Vanguard account
If you invest through a taxable account at Vanguard, you can choose how the platform calculates your cost basis — the original value of your investments — which can have a significant impact on your capital gains taxes when you sell. Your planner might suggest you make a change to manage your tax liability more strategically.
What Is a Cost Basis Method?
Your cost basis method determines how Vanguard calculates which shares are sold when you place a trade. The method you choose affects the gain or loss reported to the IRS when you sell investments.
Common Methods:
| Method | Description | Tax Strategy |
|---|---|---|
| FIFO (First-In, First-Out) | Oldest shares sold first | May trigger higher gains |
| LIFO (Last-In, First-Out) | Newest shares sold first | Often reduces gains |
| Average Cost | Uses average price per share | Simplified method, default for mutual funds |
| Specific Identification | You choose which lots to sell | Most tax-efficient, allows tax-loss harvesting |
Vanguard defaults to Average Cost for mutual funds and FIFO for ETFs, unless you change
How to Change Your Cost Basis Method on Vanguard
You can change your cost basis method for each individual security in your taxable account
- Log in to your Vanguard account (Go to www.vanguard.com and enter your username and password.)
- Go to www.vanguard.com and enter your username and password.
- Navigate to "Profile" in the top right hand corner of the page and click into your "Profile & account settings" page
- Navigate to the "Accounts & trading" tab in the middle of the page
- Select "Cost basis method"
- From the cost basis method election page, navigate to the middle of the screen under your managed accounts section and click "Update all eligible positions"
- From there, select "Minimum tax" and "Apply" to update your account
