Specific Share Identification

Shares of the same company can look interchangeable in an account while carrying different tax histories, so buying fifty shares in January and fifty in July creates two acquisition lots. Selling fifty later raises the question of which lot's basis and holding period apply.

Specific identification answers that question through an actual selection, not an assumed ordering rule, and it differs from first-in, first-out, which generally assigns a sale to the earliest acquired shares when that rule applies. The United States provides a concrete procedural example: IRS Publication 550 for 2025 says that, when a broker holds the stock, adequate identification involves telling the broker the particular stock to sell or transfer at the time and receiving written confirmation within a reasonable time.

A spreadsheet is not that confirmation, and other holding arrangements have different identification rules, so the US broker example is not universal. Check the account method before selling.

A tax lot's basis is not necessarily its original quoted share price, because acquisition costs and later adjustments can matter, and splits, reinvestment and other corporate events require records so the selected lot's basis and share count remain consistent. The sale proceeds and basis determine gain or loss before applying the relevant tax treatment.

Selecting a higher-basis lot can reduce the gain on that particular sale, but that does not automatically make it the best choice because holding periods, loss restrictions and future sales also matter. Holding period is a separate variable, since a recently purchased higher-cost lot may have a different tax classification from an older lower-cost lot.

Compare the applicable treatment rather than assuming the lowest reported gain always produces the lowest tax. An investor might deliberately realise a gain or loss for a planning purpose, but specific identification gives control over which eligible lot is sold, not a promise that every selected loss can be deducted immediately, and restrictions such as applicable wash-sale rules need independent checking.

Average-basis methods are another separate question, as their availability and effect depend on the instrument, jurisdiction and elections. A method available for some fund shares should not be casually applied to ordinary company shares or switched after seeing the desired result.

Records connect the choice with the transaction, so retain acquisition dates, quantities, adjusted basis, sale instructions and broker confirmation, and reconcile the selected lots with the statement and tax reporting rather than discovering a mismatch when preparing a return. This concept differs from specific identification of inventory, where inventory accounting matches a particular physical item's cost to a sale.

Share identification selects among investment tax lots and has its own evidence rules, even when both processes avoid an assumed cost-flow order. For a portfolio review, separate the investment decision from the lot decision by assessing investment fit first and then lot choices and tax consequences, because tax benefits do not establish investment fit.