Specific-Shares Method

AAA

DEFINITION of 'Specific-Shares Method'

A personal financial accounting method that, when used properly, can help reduce capital gains realized for an investor who purchased multiple sets of a stock or mutual fund. In turn, the investor's total tax paid in a given tax year is also reduced. In order to use the specific-shares method, the investor needs to keep careful records - particularly the cost basis - of each stock or mutual fund purchase. Then he/she must provide detailed information on which particular shares are to be sold to the broker managing the investor's account.

INVESTOPEDIA EXPLAINS 'Specific-Shares Method'

Here's an example:

An investor purchases 50 shares of Company XYZ at a price of $30 per share on June 15, 2001. A year later, the shares of Company XYZ have depreciated in value to $10 per share, so the investor decides to purchase 60 more shares. Two years after that, the value of Company XYZ shares have appreciated in price to $90 per share.

The investor decides to sell 50 of her shares and realize a profit, but still hold onto the rest as she expects Company XYZ shares to continue to rising in price.

Using the specific-shares method to minimize the gains realized on her sale of XYZ, the investor calls her broker and asks him specifically to sell the 50 shares of Company XYZ that were purchased on June 15, 2001. These shares were more expensive, so the capital gain realization is minimized: the cost basis of these shares is $1,500 ($30*50 shares), so the investor realizes a capital gain of $3,000 ($90*50 shares - $1,500). If the investor had sold 50 of the shares she purchased at $10 per share - which would have a cost basis of $500 ($10*50), she would be liable for a capital gain of $4,000 ($90*50 - $500).

RELATED TERMS
  1. Income Tax

    A tax that governments impose on financial income generated by ...
  2. Last In, First Out - LIFO

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

    An increase in the value of an asset or property. A gain arises ...
  4. Friends and Family Shares

    A company's stock that is offered to preferred individuals, prior ...
  5. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  6. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
RELATED FAQS
  1. No results found.
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. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  3. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  4. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  5. Investing

    Active Funds: Getting What You Are Paying For?

    Fund investing could have hidden costs that can potentially make a big impact on your final return, particularly over the long-term.
  6. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  7. Investing Basics

    This Investment Strategy Could Be Your key To Success

    Goal-based investing seems like an obvious tactic. But many investors have only a vague idea what their goals are, much less how to achieve them.
  8. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  9. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.
  10. Investing

    What's a Sunk Cost?

    A sunk cost was incurred in the past, is independent of future events and cannot be recouped. Economists teach that sunk costs should not be considered when making a financial decision. Rather, ...

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center