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If I bought some shares of a stock over a year ago, and some within the last year, is there some way I can sell the shares I bought over a year ago without paying additional taxes? I know in the United States there is a higher tax rate on stock sales within one year, and I want to avoid that. However, I believe the stock may have reached a peak, and want to get rid of as much of it as possible.

Will the stock broker (Charles Schwab) know which shares I am selling so I can sell the older ones and not the recent ones?

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    Have you asked them? – Michael Aug 4 '17 at 15:55
  • When selling stock you should be able to "choose lots" so that you can explicitly sell the older shares. Do you not see that as an option? – D Stanley Aug 4 '17 at 15:55
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Most brokers I've worked with will automatically assume you're selling the shares you've owned the longest.

That said, some brokers (and probably most now!) offer tools for you to tell them which shares you want to consider you sold. This is because, well, in the old days when gold nuggets laid in the streets and angels danced as you walked, you had to track your basis on your own and were able to declare which lots you sold when preparing your taxes. Now that brokers in the US are responsible for tracking basis, and auto-reporting it to the IRS, it is probably important that you and the broker be on the same page.

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Charles Schwab allows you to configure your lots. You can pick Tax lot Optimizer to do what you are looking for you.

There are other other options as well. Please have a look at this url for the different options:

http://help.streetsmart.schwab.com/edge/1.22/Content/Cost%20Basis%20Method.htm

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What you want is FIFO.. but here are other tax lots to give you an idea:

  • FIFO: First In First Out - Simply put this tax lot will sell the oldest security lots in your account first.
  • LIFO: Last In Last Out - Simply put this tax lot will sell the most recent security lots in your account first.
  • Highest Cost: This method selects the security lots that have the highest cost basis and sells them first; this is to limit gains.
  • Lowest Cost: This is the exact opposite of the above.
  • Tax Harvester: This method will sell security lots in a way to minimize capital gains tax. Ex: If you have a lot where you have unrealized gains, and another with unrealized losses. When you go to sell, it will strategically sell the unrealized gains lot first then the unrealized loss to offset the gains.

Depending on your brokerage, you can change the tax lot per order or set a tax lot as default. In your situation, if you want to sell your entire position, it wouldn't really matter what tax lot you choose - you will incur a short term gains tax and a long term.

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