# How to compute cost basis over multiple purchases, for sale of a fraction of the assets?

(The example below is, of course, unrealistically simple, just for the sake of illustration.)

Suppose that I made the following purchases and sales of shares of some stock X:

``````| 01/15/2021 | bought |  10 shares |  \$50/share |    -\$500 |
| 02/15/2021 | bought |  10 shares |  \$60/share |    -\$600 |
| 03/15/2021 | bought |  10 shares |  \$70/share |    -\$700 |
| 04/15/2021 | bought |  10 shares |  \$80/share |    -\$800 |
| 05/15/2021 | bought |  10 shares |  \$90/share |    -\$900 |
| 06/15/2021 | bought |  10 shares | \$100/share |  -\$1,000 |
| 07/15/2021 | bought |  10 shares | \$110/share |  -\$1,100 |
| 08/15/2021 | bought |  10 shares | \$120/share |  -\$1,200 |
| 09/15/2021 | bought |  10 shares | \$110/share |  -\$1,100 |
| 10/15/2021 | bought |  10 shares | \$100/share |  -\$1,000 |
| 11/15/2021 | bought |  10 shares |  \$90/share |    -\$900 |
| 12/15/2021 | bought |  10 shares |  \$80/share |    -\$800 |
|------------+--------+------------+------------+----------|
| 2021 TOTAL |        | 120 shares |            | -\$10,600 |
|------------+--------+------------+------------+----------|
| 03/15/2022 | sold   |  42 shares |  \$40/share |   \$1,680 |
| 09/15/2022 | sold   |  21 shares |  \$30/share |     \$630 |
|------------+--------+------------+------------+----------|
| 2022 TOTAL |        |  63 shares |            |   \$2,310 |
``````

Clearly, the sales I made in 2022 (63 shares for a total of \$2,310) represent a capital loss, since the sale prices were all below the original purchase prices.

I want to claim this capital loss as a deduction when I file my U.S. income taxes for year 20221 to the Internal Revenue Service (IRS).

Q: How I should compute the cost basis for the 63 shares I sold in 2022 so as to maximize the capital loss that I (lawfully!) report to the IRS.

Here are some possibilities that come to mind.

Naively, if I wanted to maximize my capital loss (for the purposes of reporting them to the IRS), I would calculate the cost basis for the sold shares as though they were the ones that I paid the most for in 2021. Here's such calculation:

``````| 10 shares | \$120/share | \$1,200 |
| 20 shares | \$110/share | \$2,200 |
| 20 shares | \$100/share | \$2,000 |
| 13 shares | \$90/share  | \$1,170 |
|-----------+------------+--------|
|           |      TOTAL | \$6,570 |
``````

With this cost basis, my capital loss would be \$6,570 − \$2,310 = \$4,260.

Another possibility would be that I average out the purchase prices. I bought a total of 120 shares in 2021, and paid \$10,600 for them. This corresponds to an average price of (\$10600/120) per share. Therefore, the cost basis for the 63 shares that I sold in 2022 would be 63 × (\$10600/120) = \$5,565. With this cost basis, my capital loss would be \$5,565 − \$2,310 = \$3,255.

Of course, I would prefer the first approach above, but I don't know if it would be acceptable to the IRS. (Actually, I don't know if any of the calculations shown above would be acceptable to the IRS.)

1 And possibly for some subsequent years as well, as carry-over, assuming that the total capital loss exceeds the maximum I can claim as deduction in one year.

• Did you tell your broker what method to use? Did you specify specific shares when you sold the shares? Commented Mar 20, 2023 at 12:25
• @mhoran_psprep: the answer is "no" to both questions.
– kjo
Commented Mar 20, 2023 at 12:26
• Then what method does your broker think they were supposed to use? Check your account. Commented Mar 20, 2023 at 12:27
• You need to specify the lot at the time of sale, not now. Commented Mar 20, 2023 at 16:00