4 ms·

Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specific

by sowbug 7y ago

Lot identification actually isn't a tax-time decision; it's a transaction-time decision. If you don't identify the specific lot you're selling (or more specifically if your broker isn't given or doesn't follow instructions which lot to sell), then in general sales are treated as FIFO, which might not be surprising because that characterization leads to maximum gain in a rising market. See Internal Revenue Service Publication 550 for more. This means that the tax treatment of a stock sale is in fact fixed at the time of transaction; moreover, it's entirely automatable by standing instructions to the brokerage, which most brokerages routinely offer as a feature ("tax optimizer" or "tax-lot optimizer" or similar language). (This of course is all US tax code, not applicable to US states or other countries.)

xamuel 7y ago
Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with amnesia might temporarily forget their ownership of longer-term holdings. And for just one example where FIFO would be suboptimal despite a rising market, merely suppose that you know you're about to die and your children are about to inherit everything with a higher cost basis, but you need a bit of cash right now. (I highly doubt tax optimizer software has achieved the strong AI that would be necessary to know if you're about to die.)
- linuxftw 7y ago
  You've clearly never bought and sold stock in two different lots in the US before. Brokerages report cost-basis to the IRS, this basis will be calculated based on your selection when you initiate the trade. You can't start talking about other capital gains in the same sentence as regulated securities as the reporting requirements are going to be different.
- sowbug 7y ago
  Interesting. I thought your original comment was explaining why the IRS doesn't have all the information it needs to determine tax due by itself, and your example was stock trading. In that case not only is there a documentary requirement at time of transaction, but there's a catch-all rule for cases where you turn out not to have such documentation. Amnesia or "ad hoc unrecorded environments" absolutely aren't exceptions to any of those rules. Perhaps you're trying to make a different point now, or I misunderstood your original one.

by sowbug 7y ago

xamuel 7y ago

Not a tax lawyer, but reporting of lot identification is a tax-time decision, at least for the things being discussed in this thread. If it's transaction-time then that's totally unenforceable since this discussion applies to things as diverse as trading physical goods for other physical goods in an ad hoc unrecorded environment. It would make no sense for it to automatically be FIFO anyway, for example a person with amnesia might temporarily forget their ownership of longer-term holdings. And for just one example where FIFO would be suboptimal despite a rising market, merely suppose that you know you're about to die and your children are about to inherit everything with a higher cost basis, but you need a bit of cash right now. (I highly doubt tax optimizer software has achieved the strong AI that would be necessary to know if you're about to die.)

linuxftw 7y ago
You've clearly never bought and sold stock in two different lots in the US before. Brokerages report cost-basis to the IRS, this basis will be calculated based on your selection when you initiate the trade. You can't start talking about other capital gains in the same sentence as regulated securities as the reporting requirements are going to be different.
sowbug 7y ago
Interesting. I thought your original comment was explaining why the IRS doesn't have all the information it needs to determine tax due by itself, and your example was stock trading. In that case not only is there a documentary requirement at time of transaction, but there's a catch-all rule for cases where you turn out not to have such documentation. Amnesia or "ad hoc unrecorded environments" absolutely aren't exceptions to any of those rules. Perhaps you're trying to make a different point now, or I misunderstood your original one.