Understand Lot Selection Methods

First in First Out (FIFO) 

Lots acquired first are sold first. The oldest lot is sold first based on the holding date. If you set the accounting basis Cost Basis Covered Indicator field (tag 2818) to Y, unknown cost lots are relieved first. The oldest cost lot is sold first based on the holding date.

This method is driven off of tag 164 (open holding period date). When you process a closing transaction in Eagle Accounting with this method, the system scans the open lots for tag 164 equal to and prior to the trade date of the close. It is this date that determines what lots the system closes first and/or last. The FIFO method closes the lots held the longest compared to the trade date of the close. 

The open holding period date for the majority of open trades is equal to the Trade Date (tag 35) and is set by rules processing. For other trade events such as Conversion, Receive In, and Customer Provided Basis (CPB), the open holding period date can differ from the trade date and needs to be provided on the event. Wash sale processing can also influence the open holding period date to differ from trade date.

Last In First Out (LIFO) 

Lots acquired last are sold first. The most recent lot is sold first based on the holding date. If multiple lots share the same holding date, the system relieves the lot with the greatest event sequence first. The event sequence, set internally by the system, indicates the processing order of transactions within the same position.

This lot selection method is driven off of tag 164 (open holding period date). When you process a closing transaction in Eagle Accounting with this method, the system scans open lots for tag 164 equal to and prior to the trade date of the close. It is this date that determines what lots are closed first and/or last. The LIFO method closes the lots held the shortest compared to the trade date of the close. For LIFO, if multiple lots are open with the same open holding period date, the system selects the lot most recently processed by Eagle Accounting.

The open holding period date for the majority of open trades is equal to the Trade Date (tag 35) and is set by rules processing. For other trade events such as Conversion, Receive In, and Customer Provided Basis (CPB), the open holding period date can differ from the trade date and needs to be provided on the event. Wash sale processing can also influence the open holding period date to differ from trade date.

High Amortized Cost or High Cost (HCLOT) 

The lots with the highest current cost are sold first. The system uses current unit cost, which includes amortization for debt securities. This method relieves the lots that can generate the maximum loss or the minimal gain.

This lot selection method is driven by the current unit base cost of the open lots for non-debt securities and aims at the current amortized cost for debt securities. The high cost method (HCLOT) aims at relieving the lot(s) that generate the maximum loss or the minimal gain. The methodology is the same for short positions in that the lots are relieved to generate the maximum loss or the minimal gain. 

Lost Amortized Cost or Low Cost (LCLOT) 

The lots with the lowest current cost are sold first. The system uses current unit cost, which includes amortization for debt securities. This method relieves the lots that can generate the minimal loss or the maximum gain.

This lot selection method is driven by the current unit base cost of the open lots for non-debt securities and aims at the current amortized cost for debt securities. The LCLOT method works just opposite that of the HCLOT method. This method is very similar to the Best Tax method. The best tax method goes a step further by taking into account the gain/loss term.

High Original Cost (HORIG)

The lots with the highest original cost are sold first. The system uses the original unit base cost of the open lots. It relieves the lots that can generate the maximum loss or the minimal gain. The methodology is the same for short positions in that the lots are relieved to generate the maximum loss or the minimal gain.

Low Original Cost (LORIG) 

The lots with the lowest original cost are sold first. The system uses the original unit base cost of the open lots. It relieves the lots that can generate the minimal loss or the maximum gain. The methodology is the same for short positions. The LORIG method works just opposite that of the HORIG method.

Identified Lot (IDLOT) 

The specified lot or lots are sold first, which determines cost and tax implications. You can optimize this option to specific tax situations by selecting the specific lots to be sold.

If you select this method, the lower pane in the close trade panel displays lot details for each available lot, as determined by the entity's controlling basis. If no controlling basis exists, it displays lots for the primary basis. You must specify the quantity for one or more lots that you want to relieve. The total quantity you specify for the open lots must match the quantity entered for the total close. The close trade relieves the selected lots in each of the entity's accounting bases, and keeps the lot structures in sync. The system uses the lot's Orig Event ID field (tag 457) to match a single open lot in one basis to corresponding multiple open lots in another basis, as needed. This can occur for lots fractured as a result of wash sale processing.

Best Tax (BTAX) 

Best Tax selects the appropriate cost of a long security sold and selects the appropriate proceeds of a covered short sale. You only can use Best Tax can for amortized cost and cannot use it for average cost or original cost. You cannot use Best Tax on forward contracts. The Best Tax method is very similar to the High Cost method but goes a step further by taking into account the gain/loss term of the open lots. The following describes the Best Tax methodology for long and short positions:

Long Positions. Best Tax determines the cost of a long security sold by selecting the cost per unit for non-debt securities and the amortized cost per unit for debt securities associated with the sale from the appropriate lots as follows:

1. Short Term Loss (High loss to Low loss)

2. Long Term Loss (High loss to Low loss)

3. Short Term No Gain or Loss

4. Long Term No Gain or Loss

5. Long Term Gain (Low gain to High gain)

6. Short Term Gain (Low gain to High gain

In addition, Best Tax selects lots using the "last in first out" method (LIFO) when two or more lots have different original holding dates, but the two or more lots have the same tax treatment (that is, Short term losses), and the same cost per share. For example, if there is one lot to close and there are two open lots that would generate the same short term loss but one has a holding date of 1/1/2004 and the other has a holding date of 6/1/2004, the system relieves the lot with the 6/1/2004 holding date first.

As it applies to long positions, short term is a holding period of less than 1 year. Long term is a holding period that is greater than or equal to 1 year. Technical short positions always receive the same Best Tax treatment as Long Positions.

Short Positions. Best Tax determines the sales proceeds of a covered security sold short by selecting the sales proceeds per share associated with the sale from the appropriate lots as follows:

1. Short Term Loss (High loss to Low loss)

2. Short Term No Gain or Loss

3. Short Term Gain (Low gain to High gain)

Realized gains or losses are always treated as short term, regardless of the original holding period, for covered short positions.

Tax Advantage (TXADV) 

The lots with the lowest tax liability are sold first to minimize tax liability.

Tax Advantage requires that you use the Identified cost method. When evaluating lots for disposal, Tax Advantage uses the holding period to determine whether to apply a short term or long term tax rate. It calculates base gain/loss per unit, applies a short or long rate as appropriate to weight each lot, and ranks lots from lowest to highest tax liability. If multiple lots have the same tax liability, it relieves those lots in a FIFO manner.

Tax Advantage uses base currency values to evaluate tax lots for disposal. Tax rates for the fund/entity are based on the entity's Country of Tax code. You can apply this method to equity and debt security types that have Original Issue Discount (OID), amortization, and inflation linked income, as well as those securities that have market discount at disposition. This method does not support Forward or Swap securities, or Journal to Cover and Option Exercise events. You cannot use it for Currency Cost of Cash.

Tax Efficiency (TXEFF)

The lots with the lowest tax liability are sold first to minimize tax liability. The system calculates the tax liability based on the manipulation of entity level tax factors for long and short term gains, long and short term losses, and currency gains. The system also incorporates the wash sale disallowance effect and considers the overall tax implications of closing each individual lot.

Modified FIFO (MFIFO) 

The open lots with the same original acquisition date (tag 216) as the close transaction are sold first, starting with the lots with the lowest unit cost local. If there are no open lots with the same acquisition date as the close transaction, or all same day lots have been sold, the oldest open lots are sold first based on the acquisition date. Within a single acquisition date, the lots with the lowest unit cost local are sold first.

Versus Purchases (VSP) 

The lots are selected and sold based on lot purchase characteristics, such as the target purchase date and the target purchase price.

Pro Rata (PRORATA)

The lots are selected and sold based on a proportionate allocation.

Use Basis Lot Selection Method

The system uses the lot selection method associated with the transaction's accounting basis to determine how to relieve (sell) lots of a security held by the entity.