When one sells some shares of stock acquired over decades of dollar cost averaging?

[nextwife]

What is the name of your state? WI

Just curious: if one has been buying a fixed dollar amount of mutual funds every month for decades, when they eventually sell some shares, how does one know what they paid for the specific shares being sold? Every month they bought, the share price varied from the previous month. How does one allocate the share price to a given share of stock for capitol gains calculation purposes?

 

[fairisfair]

If I remember correctly, and if I don't, surely someone will correct me. You can choose to account by either FIFO or LIFO, but you must maintain that manner of accounting throughout. In other words, you can sell according to first in first out (FIFO). Older shares at their purchase price are first sold. or you can sell by (LIFO) last in first out. newest shares are the ones deemed to be sold. You aren't allowed to change though, whatever system you choose is the one you are stuck with.

 

[nextwife]

Thank you.

 

[xylene]

Quite right.

Further info-

FIFO is the default position, and is the most simple and sensible for most investors, unless you are trying to shield gains to be sold later... very complex stuff actually.

consult this website for a simple summary.

www.fool.com/taxes/2000/taxes000818.htm

 

[efflandt]

For mutual funds it is either FIFO or average explained in http://www.irs.gov/pub/irs-pdf/p564.pdf

For individual stocks or ETF's you cannot used the average method, but can select any specific lot(s). If you regularly use a direct purchase plan or auto reinvest dividends (DRiP) which can include fractional shares for a long period of time, it can get complicated (most easily done in IRA/Roth IRA where it does not matter).