Specific ID vs FIFO: How Tax Lot Selection Controls Your Taxes

When you sell stocks or funds, the Specific ID, a tax lot selection method that lets you choose exactly which shares to sell gives you direct control over your capital gains. It’s the opposite of FIFO, a default method that sells your oldest shares first, which can force you to pay more in taxes than needed. Many investors don’t realize this choice can save hundreds—or thousands—of dollars a year, depending on how their portfolio has moved over time.

Most brokerages use FIFO by default, especially for retirement accounts or if you haven’t set up a preference. But if you bought shares at different prices over several years—say, $20 in 2020, $35 in 2022, and $50 in 2024—FIFO will always sell the $20 shares first. That means higher gains, higher taxes. With Specific ID, you pick which lots to sell, letting you target high-cost shares to reduce gains or low-cost shares to harvest losses. This isn’t just for pros. It’s a tool anyone can use if their brokerage allows it. You can even use it to balance your portfolio’s tax burden across years, especially if you’re managing multiple accounts.

Related concepts like cost basis, the original value of an asset for tax purposes and capital gains, the profit from selling an investment tie directly into this. If you’re holding assets that have grown significantly, your cost basis becomes critical. Selling the right lots using Specific ID can turn a taxable event into a tax-neutral one—or even a tax loss. That’s why financial advisors recommend tracking your lots manually or using tools that support Specific ID. It’s not magic. It’s math you control.

Some brokers make it easy. Others bury the option in settings or charge for it. If you’re serious about minimizing taxes, check your platform now. You might be leaving money on the table by sticking with FIFO. The posts below show real examples: how people used Specific ID to offset losses from bad investments, how FIFO surprised retirees with big tax bills, and why certain funds make one method far better than the other. You’ll also find checklists for setting up lot selection, how to handle partial sales, and what happens when you switch methods. No theory. Just what works.