Specific Share Identification

Definition of 'Specific Share Identification'


A method of choosing the exact shares to be sold in order to obtain the most favorable tax treatment when selling a portion of a holding that was purchased on several different dates and at several different prices. Specific share identification requires investors to give special instructions to the brokerage firm executing the trade.

It also requires investors to keep detailed records that show their cost basis for each sale. Specific share identification is especially useful for avoiding capital gains taxes when selling only a portion of a holding in which the investor has an overall loss.

Investopedia explains 'Specific Share Identification'


Investors may incur substantially different amounts of income tax liability depending on which of four methods they choose for identifying which shares they've sold. First in, first out (FIFO) is the most common method; it's also the method that the IRS assumes you are using unless you specify otherwise.

FIFO assumes that the first shares you purchased are the first ones you sold. Less common and more complicated methods for identifying shares sold include single-category averaging (used primarily by mutual fund companies) and double-category averaging (rarely used).


Filed Under:

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an 80% loan-to-value ratio, the second position lien has a 10% loan-to-value ratio and the borrower makes a 10% down payment. 80-10-10 mortgage transactions are piggy-back mortgage transactions, and are frequently used by borrowers to avoid paying private mortgage insurance.
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific benchmark, such as a SPDR. Unlike actively managed ETFs, passive ETFs are not managed by a fund manager on a daily basis.
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another market so that it balances out. So when examining a specific market, if all other markets are in equilibrium, Walras' Law asserts that the examined market is also in equilibrium.
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
Trading Center