since the DRP was being used, the purchase of fractional shares occurs every year. example year 1- 95.7 shares. year 2 - 4.4 shares. total 100.1 shares. so which lot did the .1 shares that were sold come from?
FIFO is the default cost basis method used by brokers, unless a different method of calculation is selected. Using the FIFO method those you bought the earliest are sold first. If you choose the LIFO method instead, the lots that you bought most recently are sold first. Under the SLI method, you decide which lots are sold on a sale-by-sale basis.
The key point here is that different methods may produce different results for the same sale—for example, in certain circumstances, you might record a gain using the LIFO method but a loss using the FIFO method.
from IRS PUB 550
Identifying stock or bonds sold. If you can
adequately identify the shares of stock or the
bonds you sold, their basis is the cost or other
basis of the particular shares of stock or bonds.
Adequate identification. You will make an
adequate identification if you show that certificates representing shares of stock from a lot
that you bought on a certain date or for a certain
price were delivered to your broker or other agent.
Identification not possible. If you buy and
sell securities at various times in varying quantities and you cannot adequately identify the
shares you sell, the basis of the securities you
sell is the basis of the securities you acquired
first. Except for certain mutual fund shares, discussed later, you cannot use the average price
per share to figure gain or loss on the sale of
the shares.
