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Colin OShea

September 18 , 2017

Investment Basics: Consider Taxes in a Partial Sale

Investment Basics: Consider Taxes in a Partial Sale

Generally, when you sell shares of stock, your gain or loss is the difference between the original cost and the selling price, less any transaction fees. But how do you calculate gain or loss if you sell only a portion of your shares that you’ve acquired over time? The calculation method you choose could be important for minimizing taxable gains or maximizing potentially deductible losses.   

First In, First Out (FIFO)

With the FIFO calculation method, the first shares purchased will be considered the first shares sold. The IRS assumes you’re using the FIFO method if you don’t specify a different one when you sell the investment. The FIFO calculation may result in a larger tax bill if the investment you’re selling has steadily increased in value.

However, if you’ve held the shares you’re selling for longer than one year, any gains may be taxed at a favorable long-term tax capital gains tax rate.

Designate Shares

The specific identification method lets you designate the specific shares you want to sell. As long as you’ve held the shares for longer than one year, selling the most expensive shares first may give you a favorable tax result, since they may be the shares with the highest cost basis (the price at which you acquired the investment). By specifying the shares you’re selling, you may be able to minimize reportable gain or maximize your potentially deductible losses.

Your tax professional can help you choose the calculation method that’s appropriate for your situation. Contact your Security National Bank Wealth Management advisor to review your investments and investment plan.

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