Lot Relief Method

AAA

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).

INVESTOPEDIA EXPLAINS '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. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  2. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  3. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  4. Capital Loss Carryover

    The net amount of capital losses that aren't deductible for the ...
  5. Tax Lot Accounting

    A record keeping technique that traces the dates of purchase ...
  6. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
RELATED FAQS
  1. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  2. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>
  3. In what instances does overhead qualify for certain tax allowances?

    Businesses are just as keen as anyone else to keep their tax burdens low by any means possible. Overhead expenses often qualify ... Read Full Answer >>
  4. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
  5. What metrics can be used when evaluating a telecommunications company to ensure its ...

    Cash flow analysis has been transformed since the widespread introduction of statements of cash flow, and investors have ... Read Full Answer >>
  6. How do you record adjustments for accrued revenue?

    An accountant records adjustments for accrued revenues through debit and credit journal entries in defined accounting periods ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Mutual Funds & ETFs

    When To Sell A Mutual Fund

    Unhappy with your mutual fund's returns and thinking of investing elsewhere? Read this article first.
  3. Taxes

    Using Tax Lots: A Way To Minimize Taxes

    The method of identifying cost basis can help you to get the most out of reduced tax rates.
  4. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  5. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  6. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  7. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  8. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  9. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  10. Economics

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!