Course 507: Calculating Your Cost Basis
First In, First Out (FIFO)
In this course
1 Introduction
2 First In, First Out (FIFO)
3 Specific Share Identification
4 Single-Category Averaging
5 Double-Category Averaging
6 What's the Difference?

The most basic method for figuring cost basis is FIFO, or first in, first out. This approach assumes that, as you sell shares of a stock or mutual fund, you do so in the order in which you purchased the shares. While pretty straightforward, this procedure may lead to substantial taxable gains because the longer you hold shares in a rising market, the more they're worth. No wonder the IRS assumes you are using this method unless you indicate otherwise.

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