Specific-share identification, the second way to calculate cost basis, is for meticulous investors only. If you've kept careful records of when you bought stock or fund shares and how much you paid for them, you can ask a mutual fund or broker to sell specific shares. Normally, these shares would be the ones you paid the most for, since they would generate the smallest taxable gains.
But there's a catch. Gains are taxed at different rates depending on how long you've held the shares. Profits made on shares you've held for a year or less are taxed at rates significantly higher than those levied on shares held longer than a year. So consider the matter carefully before deciding to hawk expensive newer shares.
Single-Category Averaging >>