Question

Holly has worked for Ford Motor Company for several years. Each year, she purchases 50-100 shares of the company's stock for her investment portfolio. During the current year, Holly sold 25% of her stock to purchase a new home. She hasn't maintained records to track the basis of the shares as she purchases them for her stock portfolio. What method should she use to calculate her tax basis

Answer 1

Available Options Are:

Weighted average cost method

Last-in, first-out method

First-in, first-out method

Specific identification method

Answer:

First-in, first-out method

Step-by-step explanation:

The reason is that the FIFO method is the default method for determining the basis of shares of stock being sold. So if the Holly doesn't maintains the record to track the basis of shares she purchased then FIFO method is the best solution to find the basis.

The LIFO and weighted average method are not eligible method under the tax rules so the only option left is Specific identification method which can only be used if the person maintains records to track the basis of shares he purchased which is not the case here.

So the only option left is FIFO method.