Do you own shares of a particular stock on ETRADE, but purchased them at different times and prices? Are you now looking to sell a portion of your holdings, and wondering how to strategically choose which shares to sell to potentially minimize your tax burden? You've come to the right place! Selling specific lots on ETRADE is a powerful feature that allows you to control your capital gains and losses, a critical aspect of effective tax planning.
This comprehensive guide will walk you through the process, step by step, ensuring you understand not just how to do it, but also why it's so important.
The Importance of Specific Lot Selling: Understanding Cost Basis and Tax Implications
Before diving into the "how-to," let's quickly grasp the "why." Every time you buy shares of a security, E*TRADE (and other brokerages) creates a "tax lot." This lot records the number of shares, the purchase date, and the cost basis (your original purchase price, including any commissions).
When you sell shares, your brokerage needs to know which cost basis to apply to calculate your capital gains or losses. If you don't specify, E*TRADE typically defaults to the "First-In, First-Out" (FIFO) method, meaning the oldest shares you bought are considered the first ones sold. While simple, FIFO isn't always the most tax-efficient strategy.
This is where specific lot selling comes in. By actively choosing which lots to sell, you can:
Minimize Capital Gains: If you have shares purchased at a low price (a large unrealized gain) and other shares purchased at a higher price (a smaller unrealized gain or even a loss), you can choose to sell the higher-cost shares to reduce your taxable gain.
Maximize Capital Losses: Conversely, if you have shares with significant unrealized losses, you can choose to sell those specific lots to realize a loss, which can then be used to offset capital gains and potentially a portion of your ordinary income (up to a limit). This is a core strategy in tax-loss harvesting.
Manage Holding Periods: Gains on investments held for one year or less are considered short-term capital gains and are taxed at your ordinary income tax rate, which is typically higher. Gains on investments held for more than one year are long-term capital gains and are usually taxed at more favorable rates. Specific lot selling allows you to manage your holding periods to qualify for long-term treatment when possible.
Now, let's get down to the practical steps!
Step 1: Log In and Navigate to Your Portfolio
The journey begins by accessing your E*TRADE account.
A. Securely Log In: Open your web browser and go to the official ETRADE website (us.etrade.com). Enter your User ID and Password to log in. Always ensure you are on the legitimate ETRADE site to prevent phishing attempts.
B. Access Your Accounts: Once logged in, you'll typically be taken to your account overview or dashboard. Look for a section or tab that says "Accounts," "Portfolio," or "My Accounts." Click on it to view your holdings.
Step 2: Select the Stock You Wish to Sell
Within your portfolio, you'll see a list of all your investments.
A. Locate the Specific Security: Scroll through your holdings and find the stock or ETF you intend to sell.
B. Initiate a Sell Order: Next to the security, there will usually be an option like "Trade," "Sell," or a dropdown menu. Click on "Sell" to open the trade ticket.
Step 3: Choose "Sell Specific" on the Trade Ticket
This is the crucial step where you tell E*TRADE you want to dictate which tax lots are sold.
A. Identify the "Action" Field: On the trade ticket, you'll see a field or dropdown for "Action" (or similar wording). The default might be "Sell."
B. Change to "Sell Specific": Carefully select "Sell Specific" from the available options. This option is vital for tax-efficient selling. If you don't see "Sell Specific" immediately, you might need to look for an "expanded trade ticket" view or a "Tax Lot Selection" option within the trade details. Some platforms may have a dedicated "Tax Optimizer" tool.
Step 4: Identify and Select Your Desired Tax Lots
Once you've chosen "Sell Specific," E*TRADE will present you with a detailed breakdown of all the tax lots you hold for that particular security.
A. Review Your Tax Lots: You'll see a table or list displaying each purchase of that stock, including:
Purchase Date: The date you acquired the shares.
Shares: The number of shares in that specific lot.
Cost Basis (Per Share/Total): The price you paid for those specific shares.
Current Market Value: The current value of those shares.
Estimated Gain/Loss: The unrealized gain or loss for that particular lot.
Take your time to review this information carefully. This is where your tax strategy comes into play.
B. Select the Lots to Sell: You will have input fields or checkboxes next to each tax lot. Enter the number of shares you wish to sell from each specific lot. Ensure the total number of shares you select across all chosen lots equals the total quantity you intend to sell for this transaction.
Strategic Considerations for Lot Selection:
Harvesting Losses: If you're looking to offset gains, prioritize selling lots with the largest unrealized losses.
Minimizing Gains: If you want to keep your current tax bill low, focus on selling lots with the highest cost basis (smallest gains or even losses).
Long-Term vs. Short-Term: Pay close attention to the purchase dates. If you've held shares for over a year and have a gain, selling those will result in a long-term capital gain, taxed at a lower rate. If you've held shares for less than a year and have a gain, selling those will result in a short-term capital gain, taxed at your ordinary income rate.
Step 5: Enter Order Details and Review
After selecting your specific lots, proceed to fill in the rest of your order.
A. Choose Order Type:
Market Order: Executes immediately at the best available market price. Use with caution, especially for volatile stocks, as the price can fluctuate rapidly.
Limit Order: Allows you to set a specific price at which you want the order to be executed. Your order will only be filled if the stock reaches your specified price or better. This is generally recommended for more control.
Stop Order (Stop-Loss/Stop-Limit): These orders trigger a sell when the price reaches a certain level, designed to limit potential losses. Be aware of the nuances and risks associated with stop orders.
B. Confirm Quantity: Double-check that the total number of shares in your specific lot selection matches the quantity you entered for the trade.
C. Review All Details: Before submitting, meticulously review every aspect of your order. This includes the stock symbol, order type, price (if a limit order), total quantity of shares, and especially the specific tax lots you've chosen to sell. Look for a "Preview Order" or "Review & Confirm" button.
Step 6: Confirm and Monitor Your Order
The final step is to submit your order and keep an eye on its status.
A. Submit Order: Once you are confident that all details are correct, click the "Place Order" or "Submit" button.
B. Monitor Order Status: After submission, you can usually check the status of your order in a "Order Status" or "Activity" section of your E*TRADE account. You'll see if it's pending, partially filled, or fully executed.
Important Considerations and Best Practices
Tax Advice: E*TRADE does not provide tax advice. Always consult with a qualified tax advisor to understand the specific tax implications of your trades and how specific lot selling fits into your overall financial plan. Tax laws can be complex and vary based on your individual circumstances.
Wash Sale Rule: Be aware of the IRS wash sale rule. If you sell a security at a loss and then buy a substantially identical security within 30 days before or after the sale, the loss may not be deductible for tax purposes. This rule is crucial to consider when tax-loss harvesting.
Settlement Period: Stock trades typically have a settlement period (usually T+2, meaning trade date plus two business days). You may be able to adjust lot selections for a trade that has already been executed but not yet settled. Check E*TRADE's specific guidelines for this.
Record Keeping: While E*TRADE tracks your cost basis, it's always a good idea to maintain your own records of your trades, including purchase dates, quantities, and cost bases. This can be invaluable for tax preparation.
Automated vs. Manual: E*TRADE might offer various default tax lot selection methods (like FIFO, LIFO, Min Gain/Max Loss). While these can be helpful, manual specific lot selection gives you the most control.
Power ETRADE and Mobile App:* The steps outlined generally apply to the desktop platform. The process on Power E*TRADE or the mobile app might have slightly different navigation, but the core functionality of specific lot selection should be available. Familiarize yourself with the interface of your preferred trading platform.
10 Related FAQ Questions
Here are 10 common questions related to selling specific lots on E*TRADE, with quick answers:
How to find my cost basis on E*TRADE? You can typically find your cost basis by navigating to your "Portfolio" or "Accounts" section, then drilling down into the specific security. E*TRADE provides cost basis information for each tax lot.
How to change my default tax lot method on E*TRADE? E*TRADE usually allows you to set a default tax lot method (e.g., FIFO, LIFO) in your account settings, often under "Tax Information" or "Account Preferences." However, choosing "Sell Specific" on the trade ticket overrides the default for that particular transaction.
How to avoid capital gains when selling stock? You generally cannot avoid capital gains entirely if you sell stock for a profit. However, specific lot selling allows you to minimize the taxable gain by selecting lots with a higher cost basis. Tax-loss harvesting (selling losses to offset gains) is another strategy.
How to know if my capital gain is short-term or long-term? A capital gain is short-term if you held the security for one year or less before selling it. It's long-term if you held it for more than one year. Your tax lot details on E*TRADE will show the purchase date, making this easy to determine.
How to use tax-loss harvesting with specific lot selling? To tax-loss harvest, identify securities in your portfolio that have an unrealized loss. When selling, use specific lot identification to sell these loss-making lots. The realized losses can then offset capital gains and up to $3,000 of ordinary income per year, with any excess carried forward.
How to tell if the wash sale rule applies to my trade? The wash sale rule applies if you sell a security at a loss and then buy a substantially identical security within 30 days before or after the sale date. E*TRADE will usually track and report wash sales on your tax forms.
How to sell shares in my E*TRADE IRA account using specific lots? While you can typically select specific lots in an IRA, the tax implications differ. Gains and losses within an IRA are generally tax-deferred (Traditional IRA) or tax-free (Roth IRA), so specific lot selling is less about capital gains taxes and more about managing your internal portfolio performance and basis tracking.
How to confirm which lots were sold after a trade on E*TRADE? After a trade executes, you can typically view the details in your "Activity," "Order History," or "Closed Positions" section. This will show which specific tax lots were used for the sale.
How to get help from E*TRADE customer service for specific lot sales? If you encounter issues or have specific questions not covered in the platform's help resources, you can contact E*TRADE customer service via phone (e.g., 800-387-2331 in the US) or secure message within your account.
How to prevent accidental FIFO sales on E*TRADE? To prevent E*TRADE from defaulting to FIFO, always remember to explicitly choose "Sell Specific" when initiating a sell order for a security where you hold multiple tax lots. Review the "Preview Order" screen carefully to ensure your desired lots are selected before confirming.