Pick Which Tax Lots You Sell Before You Click Sell

Same stock, same 100 shares, same sale price of 52. Depending on which shares you tell your broker you are selling, the result on your tax records can be a 1,200 long-term gain, a 400 short-term gain, or a 300 short-term loss. Nothing about the trade changes except a setting most traders never open.

That setting is the lot selection method. This page works through one hypothetical position to show why it deserves a look before the sale, and where the choice gets harder than it seems.

The position

Say you have bought one stock three times. Each purchase is a separate tax lot, with its own cost basis and its own purchase date.

Lot	Shares	Price paid	Bought	Holding period at sale
A	100	40	Well over a year ago	Long term
B	100	55	About eight months ago	Short term
C	100	48	About three months ago	Short term

The stock now trades at 52. You want to sell 100 shares and keep 200.

Under IRS rules, a lot owned for longer than a year gives a long-term result when it is sold, and a lot owned for a year or less gives a short-term one. The two are generally treated differently for tax. The count for the holding period generally starts the day after you buy, which matters for lots close to the line.

Three ways to sell the same 100 shares

If you do nothing, US brokers commonly apply first in, first out. The oldest shares go first. Here that is Lot A, and the sale produces the 1,200 long-term gain.

If you choose specific identification, you name the lot. Pick B and the sale produces a 300 short-term loss. Pick C and it produces a 400 short-term gain.

The lots do not have to go whole. Where the platform allows it, you can sell 50 shares from B and 50 from C in one order, and the result is the sum of the two halves: (52 - 55) x 50 plus (52 - 48) x 50, which is -150 plus 200, a net short-term gain of 50.

Brokers may offer other preset methods too, such as highest cost first or last in, first out, and the menu differs from one broker to the next. Check what yours offers and what it applies when you have not chosen.

Which lot is the right one

This is the hard part, and it is where the careful answer is conditional.

Selling B books a loss now and leaves A and C in the account. It looks best for this year. It also means the shares you still hold have lower bases, 40 and 48, so a later sale at the same price realizes more gain. Picking the highest-cost lot generally defers gains; it does not remove them.

Selling A books the largest gain of the three, and it is long term, which some traders prefer to a short-term result because the two are generally treated differently, though whether that suits you depends on your whole tax picture, which this page cannot see.

Selling C sits in between. A modest short-term gain, with the long-term lot and the high-cost lot both kept for later.

There is no single right lot. There is only the lot that fits your situation this year, and the only way to use that judgment is to make the choice before the order goes in, with your whole year of gains and losses in view and, if the numbers are large, a tax professional who can see the parts of the picture a trading account does not show.

When the loss lot has a trap

Selling Lot B at a loss invites a check. If you bought shares of the same stock within 30 days before that sale, or buy them within 30 days after, the IRS wash-sale rule can disallow the loss and add it to the basis of the replacement shares.

In this case Lot C was bought about three months ago, outside the window. Change one detail, so that C was bought two weeks before the sale, and the 300 loss on B could be caught; buy the stock back a week after selling B, and the same thing can happen from the other side of the window. The wash sale page covers how the rule works, and the wash-sale window calculator will show the dates on either side of a sale.

When to make the choice

Specific identification generally has to be chosen by the time of the sale. Deciding in April which lot you meant to sell in October is usually too late.

Two ways to handle that on most platforms:

1. Set a default method in your account’s tax or cost-basis settings.
2. Choose lots on the order ticket, where the platform offers it, each time you sell part of a position.

Where each lives varies by broker. Look before your next partial sale. After the trade, keep the confirmation or the lot detail that shows which shares were sold, because that record is what supports the choice later.

Where this does not apply

Bought a stock only once? Then there is one lot, and nothing to choose. The same is true when you sell the whole position, since every lot goes regardless of method, though the split between short-term and long-term results still depends on the dates.

Gains inside tax-advantaged retirement accounts are generally not taxed sale by sale, so the choice matters mainly in an ordinary taxable brokerage account.