0

When computing my capital gains (from trading) from year to year, can I change my calculation method each year? For example, can I use HIFO in a year when the market goes up and FIFO in a year where the market goes down?

I used HIFO for the last five years, but I made a huge loss this year, and would like to use FIFO to make the loss appear even larger, basically. To clarify my question, could I use FIFO now without amending my previous tax returns to also use FIFO?

3
  • 3
    Tax questions require us knowing the country. Jan 24, 2023 at 19:30
  • @BobBaerker does the IRS care if you use LIFO or HIFO? I know you can't change from average cost to specific lots (without restating) but it seems like you can choose lots however you want
    – D Stanley
    Jan 25, 2023 at 16:33
  • @D Stanley - You're correct. I mistakenly typoed "can" so I'm reposting my comment since it can't be edited: "US answer: You cannot arbitrarily change the method in hindsight. However, you can designate what method you want at the time of sale (long positions). If one does not designate a specific method, FIFO is the default for the IRS. Jan 26, 2023 at 16:12

1 Answer 1

1

When you prepare your tax return, you will report each disposition separately. You can choose which lots to sell, and each lot will have its own cost basis. There's absolutely no requirement that you have specific rules on how to choose which lots to sell.

The FIFO/LIFO selections at your brokerage account are used when you don't explicitly specify the lot you want to sell, in that case the broker will match your sale orders to the lots based on that selection, that is all.

So no, you don't need to amend anything, and you don't even have to use the same criteria for selection within the same tax year between different transactions, let alone across years.

Where it does matter? For mutual funds you can elect to average the cost basis. In this case, once you make the election, you cannot go back. That fund will always be averaged.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .