1

Suppose the following (in the U.S.):

On 2014-01-01 I buy a single XYZ stock for $100.

On 2014-06-01 I buy an additional single XYZ stock for $500.

On 2014-12-01 I sell a single XYZ stock for $900.

So do I need to pay capital gains tax for 2014 as if I've had a gain of $800 or $400? Or something else?

Thanks!

Ofer

  • 2
    Tax questions require that you specify a country. The rules vary from place to place. You can click "edit" and add an appropriate country tag, e.g. united-states, canada, etc. – Chris W. Rea Jan 8 '14 at 23:31
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    The answer will depend on which "stock" you sell, the one bought on January 1 or the one bought on June 1. – Dilip Sarwate Jan 8 '14 at 23:39
  • @DilipSarwate FWIW, here in Canada, it doesn't work that way. For tax purposes, the total Adjusted Cost Base (ACB) of the example stock would be $600, and the ACB per unit would be $300, making the capital gain amount on the sale of one share $600. Units purchased on different dates become fungible. Can't choose which position is sold. Hence, why we really need a country tag on this question. – Chris W. Rea Jan 9 '14 at 0:03
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    @littleadv - if you hold an asset (shares, property etc...) in Australia for more than 12 months any capital gains is halved. – Victor Jan 9 '14 at 3:16
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    good to know, learned something new – littleadv Jan 9 '14 at 3:52
3

From 26 CFR 1.1012(c)(1)i):

... if a taxpayer sells or transfers shares of stock in a corporation that the taxpayer purchased or acquired on different dates or at different prices and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period of the stock.

From 26 CFR 1.1012(c)(3):

(i) Where the stock is left in the custody of a broker or other agent, an adequate identification is made if— (a) At the time of the sale or transfer, the taxpayer specifies to such broker or other agent having custody of the stock the particular stock to be sold or transferred, and ...

So if you don't specify, the first share bought (for $100) is the one sold, and you have a capital gain of $800. But you can specify to the broker if you would rather sell the stock bought later (and thus have a lower gain). This can either be done for the individual sale (no later than the settlement date of the trade), or via standing order:

26 CFR 1.1012(c)(8)

... A standing order or instruction for the specific identification of stock is treated as an adequate identification made at the time of sale, transfer, delivery, or distribution.

-1

According to the following article the answer is "first-in, first-out": http://smallbusiness.chron.com/calculate-cost-basis-stock-multiple-purchases-21588.html

According to the following article the last answer was just one option an investor can choose: https://www.usaa.com/inet/pages/advice-investing-costbasis?akredirect=true

  • It's customary here to quote a brief but relevant portion of an article, in case the source link rots. You can click "edit", copy/paste, and use the quoting feature to format appropriately. – Chris W. Rea Jan 9 '14 at 15:09

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