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Specific identification method

This rigorous cost basis recordkeeping method could help you reap the greatest tax benefits—if you're willing to put in the time.

How it works

Each time you sell shares, you select exactly which shares you want us to sell. It will appear on your statement as SpecID.

For tax purposes, you can use specific identification for all types of investments except noncovered shares (which use the average cost method).

If you intend to use this method when you sell mutual fund shares, we encourage you to set this as your preferred method before you initiate a sale online. Because it takes one business day to make specific identification data available for mutual funds, setting the method in advance will help avoid delays on your transactions.

Why you might prefer the specific identification method

You'll have more control

You'll get to choose exactly which shares you want to sell.

You could lower your tax bill

When you hand-select which shares to sell, you can choose the ones that will minimize your taxable capital gains—or that will reap you the losses you need to offset other gains.

A few things to consider

Be prepared to be hands-on

Unlike the average cost and first in, first out methods, specific identification isn't automated—you'll have to choose specific shares every time you sell assets.

We try to make this easier by giving you quick online access to the potential gain or loss for each share or lot.

More recordkeeping may be required

You'll need to keep detailed records of your adjusted basis for noncovered shares, including adjustments made for purchases and sales of mutual funds, most exchange-traded funds (ETFs), and stocks.

We won't report cost basis for those shares to the IRS—but we will report it to you, and you'll need those records to verify that what you eventually report to the IRS is correct.

You remain responsible for reporting your cost basis information to the IRS every year on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered. You should use your own records in addition to the cost basis information we provide.

In addition, for covered shares, the information you report in column (e) on Form 8949 must match what we send to the IRS on Form 1099-B.

REFERENCE CONTENT

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Noncovered shares

Shares bought before the regulatory changes took effect on January 1, 2012 (or January 1, 2011, for stocks).

Cost basis reporting for noncovered shares will be sent to you alone; it will not be sent to the IRS.