Tax Lot
What Is a Tax Lot?
A tax lot refers to a specific group of securities purchased in a single transaction at the same price. Each tax lot records the purchase date, purchase price, and number of shares acquired.
Investors may hold multiple tax lots of the same investment if they purchased shares at different times or prices.
Why It Matters
Tax lots are important for calculating capital gains or losses when investments are sold. The purchase price recorded in the tax lot determines the cost basis, which affects the amount of taxable gain or loss.
Strategically selecting which tax lot to sell can influence an investor’s tax liability.
How Tax Lots Work
Every time an investor buys shares of a stock, bond, or fund, a new tax lot is created.
When selling investments, the investor may choose which lot to sell using methods such as:
- first-in, first-out (FIFO)
- last-in, first-out (LIFO)
- specific identification
Different methods can produce different tax outcomes.
Example
An investor buys 100 shares of a stock at $20 and later buys 100 more shares at $30. These purchases create two separate tax lots. Selling shares from one lot may result in a different capital gain than selling shares from the other.
Tax Lot vs Cost Basis
A tax lot represents a specific group of purchased securities.
Cost basis is the original value used to calculate gains or losses.
FAQs About Tax Lots
Can investors choose which tax lot to sell?
Yes. Some brokerage platforms allow specific identification of tax lots.
Why do tax lots affect taxes?
Different purchase prices produce different capital gains or losses.
Are tax lots tracked automatically?
Most brokerage firms track tax lot information for investors.
Related Terms
