Gifted stock from 1992 — CPA has a plan but cost basis is a mystery pre-2012. Want a gut check before I start selling.
37, NYC, W-2 income around $200–220k depending on bonus. Feeling behind on investing and finally ready to fix it.
The situation:
I have a little over $100k sitting in a Fidelity brokerage account, 99%+ concentrated in PRUAX (PGIM Jennison Utility Fund Class A). The fund was gifted to me — not inherited — and was originally purchased in 1992. That means I carry the original 1992 cost basis, and there's likely a large embedded gain I've never quantified.
Beyond the tax problem, I'm not thrilled with the position itself. It's an actively managed fund with a higher expense ratio than index funds, and it's 100% concentrated in a single sector. That doesn't feel like an efficient place to have my only non-retirement investment sitting.
I'm in NYC, so capital gains get taxed as ordinary income at the state and city level on top of federal. My combined marginal rate is around 45%+, which makes this painful to unwind all at once.
What my CPA told me:
- Sell in tranches — start with $25,000
- We'll have to estimate the cost basis since there's no data prior to 2012, file, and see how the IRS responds
I don't have meaningful options to engineer a lower-income year, and I have no other taxable investments to use for tax-loss harvesting — this is my only non-retirement account.
My goal for this account:
No plans to buy property in the near future. Outside of retirement savings, this is my only investment account. I want to move this into diversified, low-cost index funds (total market / S&P 500 type stuff) and leave it alone for a decade or more. Set it and forget it is the vibe.
My specific questions:
- Does starting with a $25k tranche make sense given my tax rate? Is that too aggressive, too conservative, or about right for someone in my bracket?
- Has anyone dealt with estimating a cost basis this old with the IRS? What should I expect from that process — best case, worst case?
- Actual cost vs. average cost basis — which should I use? I'll likely have multiple lots from dividend reinvestment over the years. I've read that specific identification gives more control, but does that even matter when part of the basis is estimated anyway?
- FIFO vs. another sale method — does it matter here? When I actually tell Fidelity to sell, should I be selecting FIFO (first in, first out) or something else? Trying to understand if the sale method choice interacts with the cost basis method choice, and which gives me the most flexibility.
Thanks in advance.