When a taxpayer sells only a portion of the securities that they own, the average cost method is used to establish the cost basis for the shares sold.

Question

Quizplus · Accepted Answer

The taxpayer can choose among several methods to establish the cost basis for the shares sold, such as FIFO (First In, First Out), specific identification, or the average cost method, depending on what is most beneficial or preferred for their situation. The average cost method is not automatically used unless the taxpayer specifically chooses it and it is allowed by the tax regulations for the type of security being sold.

When a Taxpayer Sells Only a Portion of the Securities