I am a bit confused by this specific scenario of buys, sells and how to calculate the cost basis for the lots I'm holding. This question is for USA tax purposes.
Day1, buy 100 shares at $10
Day2, buy 100 shares at $11
Day3, buy 100 shares at $12
Day4, buy 100 shares at $13
Day5, sell 200 shares at $9
Assuming FIFO for determining the lot which is sold, my Day1 and Day2 lots will be sold for the Day5 sale. It seems to me there are 2 ways of calculating cost basis for the Day 3 and Day 4 lots that remain.
Total loss = $100 + $200 = $300
Increase basis of Day3 and Day4 both by $150 each
Break down the transaction into 2 steps, because two separate lots were sold.
Total loss on Day1 lot: $100
Adjust day2 lot cost basis: $1100 + $100
Total loss on Day2 lot: $1200 - $900 = $300
Adjust day3 lot cost basis: $1200 + $300 = $1500
So in method 1, the cost basis adjustment would be divided amongst Day3 and Day4 lots, whereas in method 2, cost basis adjustment would only fall on Day3 lot.
Which method is correct?