What Is the Specific-Shares Method?

The specific-shares method is a way for individual investors to manipulate their capital gains or losses when selling some, but not all, of their sharesꦑ of a partic💃ular stock.

The goal of the specific-shares method is to reduce 澳洲幸运5官方开奖结果体彩网:tax liability in a given year—typically, by showing as large a loss or a𝄹s small a gain as🔯 possible.

Understanding the Specific-Shares Method

The specific-shares method can minimize the size of a capital gain or maximize the size of a 澳洲幸运5官方开奖结果体彩网:capital loss, for tax purposes, when selling off shares of a company or fund. It works by choosing to sell specific shares when reducing one’s position in a stock. Selling the shares with the highest 澳洲幸运5官方开奖结果体彩网:cost basis (i.e., the shares the investor paid the most for), will show a smaller capital gain or a greater capital loss, in either case reducing tax liability for a given year.

The specific-shares method only works if certain conditions are met. The method requires that the investor has purchased multiple lots of the same security at different prices, is selling only some♎ of their shares in that stock, and has kept a record of the cost basis of each stock or fund purchase.

Assuming all these conditions, the investor must give detailed information to the broker managing the investor’s accouꦬnt on which shares to sell. Otherwise, the average price paid for all shares of the same stock will form the cost basis, anꦇd the investor will end up with a greater tax liability than necessary.

Choices Within the Specific-Shares Method

Though it is generally in the investor’s interest to choose the highest-cost shares to sell in the specific-shares method, there are exceptions. If the highest-cost shares were purchased within the last year, choosing to sell them in the specific-shares method would count as a 澳洲幸运5官方开奖结果体彩网:short-term capital gain, which is taxed at income-tax rates, rather than the lower long-term 澳洲幸运5官方开奖结果体彩网:capital gains rate for investments held for more than a year. In such a case, the investor would choose the highes🦩t-cost shares among those purchased a year ago or more.

Another situation in which an investor would deviate from the typical strategy occurs if the investor’s taxable income including 澳洲幸运5官方开奖结果体彩网:long-term capital gains falls under a certain threshold. In 2024, the threshold is $47,025 for individuals and $94,050 for joint filers.

Under those thresholds, long-term capital gains incur no tax. In that case, the investor may choose t🤡o specify shares with the lowest cost basis in order to maximize the gain on paper and take the greatest advantage of the 0% tax rate, leaving the highest-cost shares in the portfolio to be specified when it is 𝔉most beneficial.

The Bottom Line

The specific shares method is a tool for individual investors. It allows them to sell off shares in order to decrease their capital gains or increase their capital losses for the year in order to lower their tax burden. But it's not always possible to use it. You need to have bought multiple lots of the same security at different prices; intend to sell some, but not all of your shares in that stock; and kept a record of the cost basis of each stock or fund purchase. All of these conditions have to be met for this method to work.