What is Tax Lot Relief? Where can I set it up?
Updated over a week ago

Tax lot relief refers to the method used to pick lots of a particular security in the case of transfer or sale. This method would determine the holding period and the effective cost basis for a transfer or sale of that security.

If you vest RSUs on a regular basis, say quarterly, each vest has a different cost basis based on the market price at the time of vesting. The cost basis and acquisition date is used to calculate the capital gains treatment when you sell that particular stock.

There are several possible methods for this calculation, such as:

  • FIFO – First-in-first out - The oldest lots are selected first.

  • LIFO – Last-in-first-out - The newest lots are selected first.

  • Lowest Cost - The lots with the lowest cost basis are selected.

  • Highest Cost - The lots with the highest cost basis are selected.

  • Specific ID – You manually select securities

  • Average Cost – Cost basis is determined by averaging the cost basis of each share or lot

Generally, as exchange funds help defer a taxable event, most investors look to contribute to the lots with the lowest cost basis.

When you transfer shares to Cache, you’ll have the flexibility to select which lots to transfer. Talk to an investment or tax advisor for help choosing an optimal method for tax lot relief. Or try our exchange fund simulator to get a general idea of how stocks with different cost bases may help with your financial planning.

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