Sell by FIFO Method

Considerations

On 4/1/02, you instruct your brokerage to sell 50 shares of MSFT without specifying which lot you want to sell from. You broker will automatically default to First-in-First-out (FIFO First in, first out (FIFO) is the default method used when selling securities by brokerages, the IRS and GainsKeeper. FIFO sells your oldest lots first.) accounting, and sell 50 shares from the first lot of MSFT you purchased. The following is the result of FIFO selling.

 

Resulting Current Holdings:

 

Impact of FIFO?

There is nothing wrong with FIFO methodology, but it doesn't allow the taxpayer to control how much gain or loss is recognized as taxable by the IRS. FIFO sells your oldest lots first, which in a rising market have the lowest cost, but the highest gain.

 

 

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