Question

When can a taxpayer use the specific identification method for determining the tax basis of the stock being sold rather than the FIFO method?

a. When the taxpayer needs to create capital losses in order to offset capital gains

b. When the taxpayer is a stockbroker (i.e. dealer in securities) and the sale is related to his business

c. When the taxpayer is selling a variety of stock investments, rather than stock from the same company

d. When the taxpayer has maintained sufficient records to document which batch of stock is being sold"

Answer 1

The specific identification method for determining the tax basis of the stock being sold can be used when the taxpayer has maintained sufficient records to document which batch of stock is being sold.

Step-by-step explanation:

The specific identification method for determining the tax basis of the stock being sold can be used when the taxpayer has maintained sufficient records to document which batch of stock is being sold. This method allows the taxpayer to specifically identify the cost of each share that was sold and calculate the tax basis accordingly. It is particularly useful when the taxpayer is selling stock from different purchases with different prices.