Specific Lot Identification.

In plain English

When you buy the same investment more than once, each purchase is a separate lot with its own purchase date and price (its cost basis). Specific lot identification is a method where you tell your broker exactly which lots to sell, instead of letting a default rule decide. By choosing high-cost lots, you can shrink your taxable gain, and by choosing lots held over a year, you can qualify for lower long-term capital gains rates. It gives you the most control over the tax outcome of a sale, but you usually have to identify the lots at the time you sell.

01Why it matters

Picking the right shares to sell can be the difference between a big taxable gain and a small one, so this method puts the tax outcome of every sale in your hands.

02The math, step by step

You own 100 shares of a stock bought at $20 and another 100 bought at $50, now worth $55 each. You want to sell 100 shares. If you specifically identify the $50 lot, your gain is only $5 per share. If you let the default first-in method sell the $20 lot, your gain is $35 per share, a much bigger tax bill.

03What this is NOT

04Receipts

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