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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.
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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).
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Search results for 'Specific-Shares Method'
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http://www.investopedia.com/articles/05/taxlots.asp
... But here we are going to take a look at how the specific-shares method (selecting
specific tax lots) can help you minimize your gains versus using one of the ...
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http://www.investopedia.com/exam-guide/series-7/equities/calculating-capital-gains-losses.asp
... Specific Shares Method Another option, one that usually requires much more bookkeeping,
is identifying specific shares by registration number when buying and ...
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http://www.investopedia.com/articles/mutualfund/cost-basis-mutual-funds.asp
... Mutual Funds.) Specific Share Identification Under this method, you are allowed
to identify the specific shares that you want to sell at the time of a sale. ...
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http://www.investopedia.com/exam-guide/series-26/mutual-fund-accounts/mutual-fund-shares.asp
... Specific identification - The investor may choose to sell specific shares in order
to ... Average share cost - This is the method used when selling all shares at ...
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http://www.investopedia.com/exam-guide/finra-series-6/taxation-issues/tax-consequences-investors-activities.asp
... Specific identification - the investor may choose to sell specific shares in order
to ... Average share cost - this is the method used when selling all shares at ...
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