Lot Relief Method

DEFINITION of 'Lot Relief Method'

A method of computing the cost basis of an asset that is sold in a taxable transaction. There are five major lot relief methods that can be used for this purpose. They include FIFO (First-In-First-Out), LIFO (Last-In-First-Out), Dollar Value LIFO, Specific ID (a specific lot of securities or assets are chosen to use for the cost basis) and Average Cost (the average cost basis of all securities or assets purchased is used).

BREAKING DOWN 'Lot Relief Method'

The choice of lot relief method can have a substantial impact on the amount of tax that may be paid when an asset is sold. There are several factors that can determine which method is best, including the amount of gain, the amount of income that year versus projected future income and the method that was chosen for previous sales.

RELATED TERMS
  1. LIFO Reserve

    The difference between the FIFO and LIFO cost of inventory for ...
  2. Average Cost Basis Method

    A system of calculating the cost basis on mutual fund positions ...
  3. LIFO Liquidation

    When a company using the LIFO (Last In, First Out) method of ...
  4. Flow Of Costs

    Refers to the manner in which costs move through a firm. Typically, ...
  5. Dollar-Value LIFO

    An accounting method used for inventory that follows the last ...
  6. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
Related Articles
  1. Investing

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
  2. Investing

    Why Last In First Out Is Banned Under IFRS (XOM)

    We explain why Last-In-First-Out is banned under IFRS
  3. Investing

    Inventory: FIFO, LIFO

    Whether a company chooses FIFO or LIFO has important implications for the bottom line and for tax liability.
  4. Managing Wealth

    Cost Basis Basics

    The term "cost basis" refers to the original value of a security you own. When you sell a stock, bond or mutual fund, you use the cost basis to determine your profit or loss, which in turn affects ...
  5. Markets

    Build Your Small Business During Downswings

    Here we offer some cost-saving measures to strengthen your business even when the market is weak.
  6. Managing Wealth

    What Determines Your Cost Basis?

    In any transaction between a buyer and seller, the initial price paid in an exchange for a product or service will qualify as the cost basis. When it comes to securities and related financial ...
  7. Investing

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  8. Managing Wealth

    Know Your Stock Cost Basis

    Understanding equity cost basis is critical for tracking the gains or losses of an investment.
  9. Markets

    Some Key Differences Between IFRS and GAAP

    The International Financial Reporting Standards and the U.S. Generally Accepted Accounting Principles have some key differences.
  10. Entrepreneurship & Small Business

    Understanding First In, First Out (FIFO)

    A company that uses the first in, first out inventory valuation method will sell, use, or dispose of assets that it produced or acquired first.
RELATED FAQS
  1. Does US GAAP prefer FIFO or LIFO accounting?

    Investigate the use of LIFO and FIFO inventory accounting methods under U.S. GAAP, and learn why there is pressure from some ... Read Answer >>
  2. What are the business consequences of using FIFO vs. LIFO accounting methods?

    Learn about the real business consequences from using a first-in, first out inventory accounting method versus a last-in, ... Read Answer >>
  3. What's the difference between weighted average accounting and FIFO/LILO accounting ...

    The main difference between weighted average cost accounting, LIFO, and FIFO methods of accounting is the difference in which ... Read Answer >>
  4. What are the disadvantages of the FIFO accounting method?

    Learn how the FIFO accounting method differs from the LIFO method and the primary disadvantages for a company using the FIFO ... Read Answer >>
  5. What are the main methods for calculating business costs?

    See why different economic actors use different methods for calculating costs, and learn how different methods can impact ... Read Answer >>
  6. What is an adjusted cost basis and how is it calculated?

    Learn what adjusted cost basis is, how it is calculated, and why this metric is important for investors, business owners ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center