Lot Relief Method

A method of computing the cost basis of an asset that is sold in a taxable transaction. There are five major lot relief methods that can be used for this purpose. They include FIFO (First-In-First-Out), LIFO (Last-In-First-Out), Dollar Value LIFO, Specific ID (a specific lot of securities or assets are chosen to use for the cost basis) and Average Cost (the average cost basis of all securities or assets purchased is used).

The choice of lot relief method can have a substantial impact on the amount of tax that may be paid when an asset is sold. There are several factors that can determine which method is best, including the amount of gain, the amount of income that year versus projected future income and the method that was chosen for previous sales.