If you are selling mutual funds, you will likely calculate your stock basis on the average cost basis (that is what many fund companies report the basis to you at).

That option is not available for individual stocks though. The IRS assumes you will use FIFO (first in first out) unless you make the written election to use specific identification. FIFO means that the first shares you bought will be the first sold. In an appreciating market, this likely means that you will face a gain on the sale of the stock. By specifically identifying the shares sold, you may be able to defer some of the tax gain until you later sell the remaining shares.

In order to specifically ID the shares sold, you need to communicate to your broker something like "Sell the 1,000 shares that I originally purchased on February 16th." Or you could even say "Sell 1,000 shares of that I originally bought for $5 a share." Be sure to do this before the sale occurs. Then next big step is to follow up with your broker becuase you need a confirmation from them in writing for your files showing that they received your request and followed it.

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