Why tax lot matters
Lot selection changes realized gain, holding period, remaining basis, and sometimes tax while leaving the number of shares sold unchanged.
How it is applied
Investors maintain acquisition records and choose specific identification, first-in-first-out, average cost, or other permitted methods before settlement deadlines.
Portfolio example
Selling 100 shares from a $20 lot creates less gain than selling 100 shares from a $10 lot at the same market price.
How to interpret it
Lowest-tax selection is not always best if it creates concentration or conflicts with portfolio objectives.
Limitations and common misconceptions
Permitted methods differ, broker defaults can apply, and wash-sale or equivalent rules may adjust replacement lots.
Sources and further reading
- Publication 550: Investment Income and ExpensesU.S. Internal Revenue Service
- Dividends and Other Corporate DistributionsU.S. Internal Revenue Service