are stocks sold fifo or lifo

Are stocks sold FIFO or LIFO?

Are stocks sold FIFO or LIFO is a common question for investors, tax filers, and crypto holders trying to minimize taxes and keep accurate records. In short: for U.S. taxable stock sales the default is FIFO unless you make and document a different election (such as Specific Identification or LIFO where allowed); mutual funds commonly permit average cost. This article explains the methods, U.S. tax and broker rules, practical consequences, examples, and how to implement lot selection using broker tools and Bitget Wallet recordkeeping.

Key terms and methods

Understanding basic terms is essential before you decide how to treat sales. The question are stocks sold fifo or lifo depends on which of the following cost-basis methods you use.

FIFO (First‑In, First‑Out)

FIFO stands for First‑In, First‑Out. Under FIFO you assign the earliest‑acquired tax lots to the sale first. If you purchased shares on three different dates, FIFO treats the sale as coming from the oldest purchase date until those shares are exhausted, then the next oldest, and so on.

• Tax effect: often produces larger capital gains when markets rise because older lots (with lower basis) are sold first.
• Simplicity: it is the IRS default when you don’t identify lots.

LIFO (Last‑In, First‑Out)

LIFO means Last‑In, First‑Out. Under LIFO the most recently acquired lots are treated as sold first.

• Tax effect: in a rising market LIFO often increases reported gains (because recent lots may have higher bases), but in a falling market LIFO can produce larger losses useful for tax‑loss harvesting.
• Availability: LIFO is less common for equities and depends on broker capabilities and security type.

Specific Identification

Specific Identification lets you pick which exact lots are sold. To use it you must identify the lots at or before settlement in a manner the broker accepts.

• Requirement: you must specify the lot (by trade date, quantity or lot ID) and the broker must confirm the selection in writing (broker statement or confirmation).
• Flexibility: this gives the most control to choose long‑term vs short‑term lots or to harvest targeted losses.

Average Cost

Average cost computes the basis as the weighted average of all shares’ cost for that holding, and treats all shares as having the same per‑share basis.

• Common use: mutual funds and many dividend reinvestment plans (DRIPs) allow average cost.
• Difference: average cost is not lot‑based—holding period for shares can be more complex and specific rules determine how long‑term vs short‑term is applied.

U.S. tax and regulatory framework

This section covers the IRS rules and broker reporting obligations that shape whether are stocks sold FIFO or LIFO in practice.

IRS default rules

When you sell securities and do not timely and validly designate which lots are sold, the IRS default is FIFO. The IRS has long provided guidance that absent valid identification, the earliest acquired shares are treated as sold first.

• As of June 2024, according to IRS guidance and commonly cited instructions for Form 8949 and Publication 551, FIFO applies when there is no acceptable lot identification.
• For dividend reinvestment plans (DRIPs) and certain mutual funds, IRS rules explicitly permit average cost treatment if the fund or plan qualifies and you elect it.

Broker reporting requirements (Form 1099‑B and covered vs noncovered)

Broker reporting rules affect both your tax return and ease of compliance.

• Covered securities: brokers must report basis, acquisition date and gain/loss information on Form 1099‑B for covered securities. Covered status generally applies to securities purchased on or after certain dates (varies by security type and rule phase‑in).
• Noncovered securities: brokers may report proceeds but not basis/acquisition date; taxpayers must supply basis information.
• Effect on elections: when brokers report basis for covered securities, they will also use a default method (often FIFO) for the basis reported to the IRS unless you instruct otherwise and the broker accepts the instruction.

Brokers are required to provide accurate 1099‑B information to the IRS. If you elect Specific Identification and the broker can implement it, the broker must confirm the lot selection in writing and reflect the chosen basis on Form 1099‑B for covered lots.

Timing and documentation rules

Proper timing and documentation are critical if you want a method other than FIFO to govern a sale.

• Identification timing: generally, lot identification must be made no later than the settlement date (the trade date plus the security’s standard settlement cycle, e.g., T+2) and per your broker’s rules. Some brokers require identification before the trade executes.
• Broker confirmation: the broker must send written confirmation (account statement, trade confirmation, or other record) confirming the specific lots that were sold. Keep these confirmations as tax records.
• Failure to confirm: if the broker cannot or does not provide confirmation, the IRS can require FIFO treatment.

Practical tax consequences

The choice of lot‑selection method affects holding period classification, short‑term vs long‑term rates, and the ability to harvest losses.

Holding period (short‑term vs long‑term) and rates

Holding period matters because U.S. federal tax treats short‑term capital gains (assets held one year or less) at ordinary income tax rates, while long‑term capital gains (assets held more than one year) enjoy lower preferential rates.

• Lot selection determines which acquisition date applies to sold shares, so selecting older lots can convert a sale into a long‑term gain or vice versa.
• Specific Identification lets you assign sales to long‑term lots first (reducing tax) or to short‑term lots to realize losses depending on your strategy.

Example scenarios

Below are short illustrative examples showing how FIFO vs LIFO/Specific ID can change reported gain or loss.

• Rising market (FIFO produces larger gains):

  • Bought 100 shares at $10 (Jan 1), 100 shares at $20 (Jun 1).
  • Sold 100 shares at $30 (Dec 1).
  • FIFO: sell the Jan 1 lot (basis $10) → gain $20/share → $2,000 gain.
  • LIFO or Specific ID: sell the Jun 1 lot (basis $20) → gain $10/share → $1,000 gain.

• Declining market (LIFO or Specific ID may increase losses):

  • Bought 100 shares at $50 (Jan 1), 100 shares at $40 (Jun 1).
  • Sold 100 shares at $30 (Dec 1).
  • FIFO: sells Jan 1 lot (basis $50) → loss $20/share → $2,000 loss.
  • LIFO/Specific ID: sells Jun 1 lot (basis $40) → loss $10/share → $1,000 loss.

These simple examples illustrate why knowing "are stocks sold fifo or lifo" is crucial to tax planning.

Wash sale rule and basis adjustments

The wash sale rule disallows a loss deduction when you buy substantially identical stock within 30 days before or after a sale at a loss. Key points:

• If a disallowed wash sale occurs, the disallowed loss is added to the basis of the replacement shares, changing future gain/loss calculations for that lot.
• Lot selection matters: when you specify which lot is sold, you must still track whether a replacement purchase triggers a wash sale and adjust basis accordingly.
• For crypto, wash sale rules historically have not applied, but legislative change could alter that; monitor guidance.

Special cases for equities

This section covers mutual funds, corporate actions, gifts, inheritances, and noncovered shares.

Mutual funds and DRIPs

Mutual funds commonly permit the average cost method and many DRIPs use average cost by default.

• Average cost: allows computing a per‑share basis across many reinvestments; commonly accepted for open‑end mutual funds and many DRIPs.
• Elections: you usually must elect average cost and the fund must permit it; once elected, rules determine whether and how you can change.
• Recordkeeping: keep fund statements showing reinvestment dates, shares, and cost—essential if you stop average cost or transfer shares.

Stock splits, corporate actions, gifts and inheritances

Corporate events and transfers alter basis and lot records.

• Stock splits and dividends: adjust basis per share (basis is allocated across the increased share count). Brokers will often reflect adjusted basis on statements.
• Gifts: donor’s basis carries over for gifts (with caveats for loss basis). Acquisition date for holding‑period purposes generally is donor’s acquisition date.
• Inherited shares: basis typically steps up (or down) to fair market value at date of death (or alternate valuation date) and holding period is usually automatically long‑term.
• Impact: these events change how lots map to basis and which lots you can identify for sales.

Noncovered shares and historical lots

If your broker doesn’t have acquisition data or the shares are pre‑reporting era (noncovered), the broker may report proceeds only.

• Taxpayer responsibility: you must provide accurate basis and acquisition dates on your tax return for noncovered lots.
• Documentation: keep original trade confirmations and records to substantiate historical lots.

How to elect and change cost‑basis method with brokers

Elections and changes commonly involve account settings, forms, and confirmations.

Changing default methods in practice

Typical steps to change default cost‑basis methods:

1. Log in to your brokerage account (for Bitget customers, use Bitget account settings or Bitget Wallet records).
2. Locate cost‑basis or tax reporting settings; select your default method (FIFO, LIFO if available, average cost for eligible securities, or Specific ID).
3. For some methods or securities, you may need to sign and return a broker form.
4. Understand effective dates: changes often apply to future purchases and may not retroactively change prior sales reporting.

Brokers differ in which methods they support and how they implement lot selection—check your broker’s help center and confirm by receiving written confirmation when you make a specific‑lot sale.

Using Specific Identification correctly

To use Specific Identification:

• Before or at settlement, notify your broker which lots you are selling (specify trade date and quantity or broker lot ID).
• Obtain and save written confirmation from the broker that confirms the specific lot(s) used for the sale.
• Reconcile the broker’s 1099‑B to your records each tax year; if the broker reported a different lot, contact them immediately.

Practical tip: use your broker’s online lot‑selection tool or contact support and request an account statement showing the lot assignment.

What to do if broker fails to confirm

If a broker cannot or will not confirm your lot identification:

• The IRS default applies (typically FIFO).
• Contact broker compliance and request written confirmation; escalate if necessary.
• Maintain your own contemporaneous records (screenshots, emails, trade instructions) as supporting evidence in case of IRS inquiry.

Application to cryptocurrencies (brief)

Many crypto holders ask the same question in crypto terms: are crypto positions sold FIFO or LIFO? The answer tracks property rules but with practical differences.

IRS treatment of crypto as property (implications for cost basis)

The IRS treats cryptocurrencies as property for U.S. tax purposes, so cost‑basis methods used for other property apply. You can use FIFO, LIFO (if supported by your tracking), or Specific Identification if you can substantiate lot identification.

• Requirement: you must be able to prove the lot(s) you sold; that requires detailed transaction history.
• As of mid‑2024, the wash sale rule has not been enforced for crypto losses because crypto is property—not a security—but legislative proposals could change that.

Reporting and practical differences vs equities

• Exchanges and wallets: many crypto platforms do not provide Form 1099‑B style reports with complete basis and acquisition dates, making recordkeeping and lot tracking the taxpayer’s responsibility.
• Tools: tax‑reporting and portfolio tools (including Bitget Wallet transaction export and portfolio reports) can help reconstruct lots and support Specific Identification.
• Recommendation: maintain detailed transaction exports (timestamp, txid, amount, USD value) and use tax software that supports lot matching.

Strategies, pros and cons

Choosing a method depends on tax timing, compliance simplicity, and trading behavior.

When FIFO tends to be preferable

• Simplicity: it’s the default and requires no extra action.
• Administrative ease: brokers report FIFO by default for covered securities.
• When older lots have been held long term: FIFO naturally sells the oldest holdings first, often taking advantage of long‑term rates.

When LIFO or Specific ID can be preferable

• Tax‑loss harvesting: Specific ID or LIFO may allow you to harvest recent losses while preserving older long‑term lots.
• Minimizing short‑term gains: by selecting long‑term lots, Specific ID reduces higher‑tax short‑term gains.
• Tactical sales: for concentrated positions or taxable rebalancing, Specific ID offers the most control.

Tactical considerations

• Portfolio turnover: frequent trading increases record complexity; automated lot tracking tools become essential.
• Tax bracket and timing: consider your expected tax rate now vs future years when deciding whether to realize gains today.
• Broker constraints: confirm whether your broker supports LIFO and how quickly they will process lot instructions.

Note: This is educational information, not tax advice. Consult a tax professional for recommendations tailored to your situation.

Examples and worked calculations (what to include)

Below is a worked example that you can copy and adapt to your portfolio. It shows purchases across time, a sale, and computed basis and gain under FIFO, LIFO and Specific Identification.

Example holdings and sale:

• Jan 10: Buy 50 shares @ $20 = $1,000 (Lot A)
• Apr 15: Buy 50 shares @ $30 = $1,500 (Lot B)
• Sep 1: Buy 50 shares @ $25 = $1,250 (Lot C)
• Dec 5: Sell 75 shares @ $40 = $3,000 (Sale)

Calculations:

• FIFO:

  • FIFO sells 50 from Lot A (basis $20) and 25 from Lot B (basis $30).
  • Basis = (50*$20) + (25*$30) = $1,000 + $750 = $1,750.
  • Gain = $3,000 − $1,750 = $1,250.

• LIFO (assuming allowed and used):

  • LIFO sells 50 from Lot C (basis $25) and 25 from Lot B (basis $30).
  • Basis = (50*$25) + (25*$30) = $1,250 + $750 = $2,000.
  • Gain = $3,000 − $2,000 = $1,000.

• Specific Identification (selecting oldest and newest):

  • If you identify 25 from Lot A and 50 from Lot C:
  • Basis = (25*$20) + (50*$25) = $500 + $1,250 = $1,750 → Gain = $1,250 (same as the FIFO scenario in this pick).

Holding period implications:

• If Lot A was >1 year old and Lot B <1 year: choosing Lot A reduces short‑term gains.
• Specific ID gives control to select which holding periods are realized.

These sample calculations show how different answers to the question are stocks sold FIFO or LIFO produce distinct tax outcomes.

Recordkeeping and tools

Good recordkeeping is essential for using nondefault methods and for accurate reporting.

What records to keep

• Trade confirmations with trade dates, settlement dates, quantities, and prices.
• Broker account statements showing lot assignments and lot history.
• Written confirmations when you instruct lot selection and the broker’s acknowledgement.
• Records for corporate actions, splits, and dividend reinvestments.
• For crypto: transaction exports with timestamps, txids, and fiat values at each transaction.

Keep records for at least as long as the statute of limitations for your tax returns (often three years, but longer if substantial items are omitted or depending on state rules).

Software and services

• Broker tools: many brokers (including Bitget for crypto and trading customers) provide lot‑selection settings and downloadable trade history CSVs. Use these to set defaults and to request confirmations.
• Third‑party tax software: lot‑matching and tax software can import exchange or wallet data and support Specific Identification accounting across many accounts.
• Spreadsheets: for small portfolios, a controlled spreadsheet with purchase dates and bases can be sufficient if maintained accurately.

Bitget tip: Bitget Wallet users should regularly export transaction histories and store verification records; Bitget’s tax and reporting tools can help reconstruct cost basis for both spot and derivative trades where supported.

References and official guidance

• IRS Publication 550 (Investment Income and Expenses) and Publication 551 (Basis of Assets) for general property and basis rules. As of June 2024 these remain primary IRS references.
• Instructions for Form 8949 and Form 1099‑B on IRS.gov for reporting sales and broker reporting obligations.
• Broker cost‑basis help pages and 1099‑B instructions: consult your broker’s tax center and the Bitget Help Center for platform‑specific procedures.

As of June 2024, according to IRS guidance and broker reporting rules, FIFO remains the statutory default in absence of valid lot identification. For current details, always check the latest IRS publications and your broker’s announcements.

Disclaimer

Tax rules change and individual circumstances vary. This article is informational and not legal or tax advice. Consult a qualified tax professional and the latest IRS guidance before making cost‑basis elections or reporting decisions.

Further actions and Bitget resources

If you want to apply lot‑selection practically:

• Review your Bitget account settings for cost‑basis options and export your trade history.
• Use Bitget Wallet exports and Bitget’s portfolio tools to reconstruct lots for crypto holdings.
• Contact Bitget support to request written confirmation of specific‑lot sales if you use Specific Identification.

Explore Bitget tools and Bitget Wallet for secure tracking and lot management to help answer the practical question are stocks sold fifo or lifo in your own accounts.