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Disposition Methods

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What are Disposition Methods?

A Disposition Method determines the order in which available lots are selected when an asset is disposed of.

When a disposal occurs, Taxbit reviews the available lots for that asset and selects lots in the order defined by the Disposition Method until the full disposed quantity is met.


How Disposition Methods Are Applied

A Disposition Method can be applied at more than one level. Taxbit uses the following order:

  1. Transaction level: If a disposal transaction includes a Disposition Method, that method is used.
  2. Account level: If the transaction does not specify a method, Taxbit uses the disposal method associated with the particular account. Note that this field is only available via API.
  3. Filer level: If neither the transaction nor the Account provides a method, Taxbit uses the disposal method associated with the particular Filer.

Please note: Once the Filer is created, the default disposition method cannot be updated. Please reach out to your customer service representative for additional details.


Available Disposition Methods

Taxbit currently supports the following Disposition Methods:

  • First In, First Out (FIFO)
  • Last In, First Out (LIFO)
  • Highest (cost) In, First Out (HIFO)
  • Lowest (cost) In, First Out LoFO)
  • Specific Lot Identification

First In, First Out (FIFO)

Under FIFO, the oldest acquired lots are disposed of first.

Available lots are sorted in the following order:

  1. Acquisition Time: oldest to newest

In practice, this means lots with the earliest acquisition date/time are selected first, and lots are pulled until the disposal amount is fully covered.

  • For standard acquisition transactions, such as buys, trades, or income events, Taxbit uses the transaction date and time when the lot was acquired.
  • For deposit transactions without customer-provided acquisition details, Taxbit uses the date and time of the transfer-in transaction.
  • For deposit transactions with customer-provided acquisition details, Taxbit uses the customer-provided acquisition date and time.

Last In, First Out (LIFO)

Under LIFO, the most recently acquired lots are disposed of first.

Available lots are sorted in the following order:

  1. Acquisition Time: newest to oldest

In practice, this means lots with the latest acquisition date/time are selected first, and lots are pulled until the disposal amount is fully covered.

Highest In, First Out (HIFO)

Under HIFO, the lots with the highest unit cost basis are disposed of first.

Available lots are sorted in the following order:

  1. Unit Cost (cost basis per unit): highest to lowest
  2. Acquisition Time: oldest to newest

In practice, this means lots with the highest unit cost are selected first, and lots are pulled until the disposal amount is fully covered.

Lowest (cost) In, First Out LoFO)

Under LoFO, the lots with the lowest unit cost basis are disposed of first.

Available lots are sorted in the following order:

  1. Unit Cost (cost basis per unit): lowest to highest
  2. Acquisition Time: oldest to newest

In practice, this means lots with the lowest unit cost are selected first, and lots are pulled until the disposal amount is fully covered.

Specific Lot Identification

Under Specific Lot Identification, the exact lot or lots to dispose of are identified directly instead of being selected automatically by a standard ordering method.

In practice, this means the disposal is matched to the specific lot details provided for that transaction.

For this method to work consistently, the transaction would need to clearly identify the intended lot, or lots, for disposal.

If the specified lots do not fully cover the disposed quantity, lots will be select based on the fallback disposition methods (e.g., Account or Filer).


Additional Lot Selection Rules

If more than one lot shares the sort value identified above, our system applies additional ordering rules to ensure selection is always deterministic.

Lot Quantity

When multiple lots remain tied after the primary sort rules mentioned above, our system prioritizes the smaller lot quantity first. This does not materially change the calculation itself, but it helps reduce the number of remaining lots and can simplify future calculations.

Lot ID

If additional sorting is still needed, our system sorts lots by the Lot ID of the transaction in which the lot was acquired. The lot ID is assigned by Taxbit automatically and is used as a standard tie-breaker when all earlier sorting rules are still tied.