Tex Payor has invested in Invest4U Mutual Fund shares at various times over the last eight years. In the past year, he has sold some of the shares purchased. To determine the cost basis of these shares, Tex:
Explanation
Answer: A - To determine the cost basis of share he has bought at various time over the last eight years, Tex can choose to sell specific shares in order to minimize or maximize his cost basis, whichever is more beneficial given his tax circumstances. If Tex doesn’t specify shares, the IRS will assume the first shares purchased were the first shares sold (FIFO) in determining Tex’s cost basis. The LIFO method cannot be assumed when determining the cost basis of the shares Tex owns, and dollar cost averaging is an investment strategy, not a method used in determining a cost basis.
