Considerations
On 4/1/02, you instruct your brokerage to sell 50 shares of MSFT without specifying which lot you want to sell from. You broker will automatically default to First-in-First-out (FIFO First in, first out (FIFO) is the default method used when selling securities by brokerages, the IRS and GainsKeeper. FIFO sells your oldest lots first.) accounting, and sell 50 shares from the first lot of MSFT you purchased. The following is the result of FIFO selling.
Buy 1/4/02 100 shares of MSFT
Buy 3/1/02 50 shares of MSFT
Sell 4/1/02 50 shares of MSFT
Resulting Current Holdings:
1/4/02 50 shares remaining of MSFT
3/1/02 50 shares of MSFT
Impact of FIFO?
There is nothing wrong with FIFO methodology, but it doesn't allow the taxpayer to control how much gain or loss is recognized as taxable by the IRS. FIFO sells your oldest lots first, which in a rising market have the lowest cost, but the highest gain.