How do you calculate capital gain tax when selling a portion of your stock portfolio?

Is there a big difference between FIFO and specifically choosing which shares to sell? I'm in a similar situation but didn't know I had options. Also, does the brokerage automatically choose one method if I don't specify?

The difference between FIFO and specific identification can be significant depending on your purchase history. For example, if your earliest shares were bought at $10 and recent ones at $50, selling the $10 shares would create more taxable gain than selling the $50 shares. Most brokerages default to FIFO if you don't specify, but they usually allow you to select specific shares before the trade settles. Check your brokerage's website or call them to see how they handle it and what options they provide. Some platforms have very user-friendly interfaces that let you select exactly which lots you want to sell.

Does it connect directly to brokerage accounts? I have stocks spread across three different platforms and calculating capital gains has been a nightmare.

I've tried other tax services that claimed to help with investment stuff but they were pretty basic. Does this actually help calculate specific identification methods or just the standard FIFO stuff that my brokerage already does?

Yes, it connects to most major brokerages through secure links, similar to how budgeting apps work. It can pull your complete trading history across multiple platforms and consolidate everything to give you the full picture of your investment tax situation. The specific identification calculation is actually one of its best features. Unlike basic services that just use FIFO, taxr.ai will analyze your entire portfolio and recommend which specific shares to sell based on your tax situation. It simulates different scenarios (selling oldest vs. newest vs. highest cost basis shares) and shows the tax impact of each so you can make the optimal choice before executing your trade.

Wait, how does this actually work? The IRS phone lines have been completely jammed for years. Are you saying this service somehow moves you up in the queue? That sounds too good to be true.

Yeah right. I've tried calling the IRS dozens of times and gave up. There's no way any service can magically get you through. They probably just keep you on hold the same as if you called directly, but charge you for the privilege.

It doesn't move you up in the queue - that would be impossible. Instead, their system continually calls the IRS using their automated technology and when it finally gets through, it connects that open line to your phone. So instead of YOU having to sit on hold for hours, their system does it for you and only calls you once there's an actual IRS agent on the line. The reason it works is because their system can make these automated calls persistently in a way no human would have the patience for. When I used it, I went about my day, and then about 20 minutes later my phone rang and I was connected directly to an IRS representative. No tricks - just technology handling the frustrating hold process.

Does the one year count from each individual purchase date? Like if I bought some shares of Apple every month for the past 3 years and want to sell some now, do I need to track which specific shares I'm selling to know if they qualify for long-term treatment?

Yes, the one-year holding period applies to each individual purchase or lot. That's exactly why the specific identification method mentioned earlier can be so valuable for tax planning. If you've been buying Apple monthly for 3 years and need to sell some shares, you could specifically identify shares that you've held for more than a year to qualify for the lower long-term capital gains rates. Alternatively, if you have some losses to harvest, you might choose to sell some of your newer shares (held less than a year) that might be at a loss due to market fluctuations.

I've used TurboTax for this the past few years and it handles it pretty well. You can import directly from most brokerages, and it will bring in all your individual lots if the broker provides that detail. Then you can review and adjust if needed. The premium version has a feature that helps you identify the most tax-efficient sales too.

This is really helpful, especially the point about dividend reinvestments! I never thought about how those would affect my cost basis. I've been automatically reinvesting dividends for years without keeping track of those small additional purchases. Do you know if most brokerages include those reinvestments in their cost basis calculations, or is that something I'd need to track separately? I'm worried I might have been missing this detail in my own record-keeping.

Most modern brokerages do automatically include dividend reinvestments in their cost basis calculations, which is great news! They're required to track this information for shares acquired after 2011, so since you've been investing since 2013, you should be covered for the vast majority of your holdings. However, it's still worth double-checking your 1099-B forms or logging into your brokerage account to verify. Look for a "cost basis" or "tax documents" section - most platforms will show you a detailed breakdown of all your purchases, including those tiny dividend reinvestments. If you have any shares from before 2011 or transferred from another broker, those might require manual tracking. But for dividend reinvestments specifically, your broker should have complete records showing the date, number of shares, and price for each reinvestment transaction. You can usually download a complete transaction history that includes all dividend reinvestments, which makes it much easier to verify everything adds up correctly!

This breakdown is super helpful! I never thought about looking at it as a percentage of my total holdings - that makes the math much clearer. So if I'm understanding correctly, when I sell $6,700 worth, I'm not paying tax on the full $6,700, just on the gain portion (which would be around $3,325 in your example). One follow-up question: you mentioned calling the broker to ask about their default method - is this something I need to do before every sale, or once I choose a method, does it stay consistent? I'm planning to do more partial sales over the next few years for various expenses, so I want to make sure I understand how this works going forward.

Exactly right - you only pay tax on the gain portion! Most brokerages will let you set a default method that applies to all future sales of that security, so you typically don't need to specify it every time. However, it's worth noting that once you choose a method for a particular stock, the IRS requires you to be consistent with that choice going forward. Some brokerages are more flexible than others though. For example, Fidelity and Schwab allow you to choose "specific identification" as your default, which gives you the most control - you can pick exactly which lots to sell each time based on your current tax situation. Other brokers might default to FIFO and require you to actively change it for each trade. I'd recommend setting this up before your first sale since it affects all future transactions. Most platforms have this setting under "Account Preferences" or "Tax Settings." This way you'll have maximum flexibility for your future partial sales without having to think about it each time!