A couple of years ago I sold some mutual fund shares using the specific lot method. Earlier this year I sold more shares, but inadvertently used the average cost method. What do I need to do, if anything, to straighten this out? –Name withheld

For calculating taxes, an investor is allowed to change from the specific lot method—where you track the cost of each lot you buy and sell—to the average cost method, in which you calculate your average cost basis based on the price paid for each share you bought. The kicker is that you have to exclude the cost of the original lots sold from the average cost calculation. Additionally, says Dallas CPA Wray Rives, you now have to stick with the average cost method with regard to any future transactions with this particular investment. Once you've shifted over to average cost, you cannot use specific lot methodology any more.

The rule would still apply if you purchase the new shares under the same brokerage account. If you purchased them inside a separate account, even if it was with the same broker, then you could use specific lot on those new shares.

-- Jeff Wuorio

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