Evaluation of Methods
Specific share identification is the most record and labor intensive, as one must track all purchases and sales and specify which share was sold on which date. It almost always allows the lowest tax bill, however, as one has discretion on which gains to realize. Starting in 2012, the shares being sold must be identified at the time of the sale.
FIFO is the default method used for brokerage securities if no other is specified, and generally results in the highest tax bill, as it sells oldest (hence generally most appreciated) shares first.
Average cost single category is widely used by mutual funds, as it is the simplest in terms of record keeping (only total basis need be tracked) and sale (no specifying required), and results in moderate tax.
HIFO sells the shares with the highest cost first in an attempt to minimize the tax bill.
Min Tax sells shares in the following order: shares with short-term losses, long-term losses, long-term gains and lastly short-term gains.
Max Gain is the exact opposite of Min Tax.
Read more about this topic: Cost Basis
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