Portfolio · Investing Glossary
What Is Tax Lot?
A specific batch of shares purchased at the same time and price, tracked separately for tax purposes.
The Full Definition
A tax lot is a specific batch of shares purchased at the same time and price, tracked separately even if they're the same stock. When you sell only part of a position built up through multiple purchases, you (or your brokerage) choose which lot to sell from, which determines the cost basis and therefore the taxable gain or loss on that sale. Methods like "specific identification" let you choose the most tax-favorable lot to sell, while "FIFO" (first in, first out) is the default many brokerages use automatically.
Real-World Example
An investor who bought 50 shares at $20 and another 50 shares at $40 of the same stock can choose to sell the higher-cost $40 lot first if they want to minimize the taxable gain on that sale, rather than automatically selling the cheaper lot.
Related Terms
- Cost BasisThe original purchase price of an investment, used to calculate gains or losses.
- Capital GainsThe profit earned when an investment is sold for more than its original purchase price.
- Tax-Loss HarvestingSelling an investment at a loss to offset capital gains and reduce your tax bill.
- Dollar Cost Averaging (DCA)Investing a fixed amount on a regular schedule regardless of market price.