> About this guide: I'm Lawrence, the writer behind supa.is. Between February and May 2026 I've published 150+ articles on supa.is across crypto and brokerage tooling — including 30+ Interactive Brokers-specific guides (recent examples: IBKR Tax Planner: How to Estimate Capital Gains Tax in PortfolioAnalyst, IBKR Account Setup: Missed Steps & First Trade Guide, IBKR Python API 2026: Build a Live Trading System). The most-repeated reader question across that IBKR archive is exactly how to configure tax lot accounting methods (FIFO vs LIFO vs Specific ID), which is why I'm publishing this standardized guide instead of answering one-off.
> Disclosure: This article contains affiliate links. We may earn a commission at no extra cost to you if you open an account through our links.
> Note: Steps below are reconstructed from official docs. Verify each step against the current UI before relying on it.
When you sell a stock or cryptocurrency you've held for a while, the taxman doesn't just care about the sale price. They care about your cost basis. If you bought 100 shares of Apple at $150, another 100 at $180, and another 100 at $200, which of those shares did you actually sell when you execute a trade for 100 shares at $210? The answer determines whether you pay short-term capital gains (taxed as ordinary income) or long-term capital gains (taxed at a lower rate).
Interactive Brokers (IBKR) lets you pick which shares get sold first using three methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Specific Identification (Specific ID). Picking the wrong one can cost you thousands in unnecessary taxes.
In this guide, we'll break down exactly how each method works, how to set it up in your IBKR account, and the strategic implications of each choice for 2026.
What Are Tax Lots?
A tax lot is a specific batch of securities purchased on a specific date at a specific price. Every time you buy a stock, you create a new tax lot. When you sell, you must assign which tax lot is being sold.
The IRS requires you to use a consistent accounting method for each security, though you can choose different methods for different stocks. Once you establish a method for a particular stock, you generally have to stick with it unless you get IRS approval to change it.
Method 1: FIFO (First-In, First-Out)
FIFO is the default method for most retail traders and the default setting for Interactive Brokers. Under FIFO, the shares you bought earliest are the ones you sell first.
How FIFO Works
Imagine you bought Bitcoin on three different dates:
- Jan 1: 0.1 BTC at $40,000
- Mar 1: 0.1 BTC at $50,000
- May 1: 0.1 BTC at $60,000
Why use FIFO?
- It's automatic: You don't have to track which specific shares you are selling. The system does it for you.
- Long-term gains: In a rising market, FIFO forces you to sell your oldest, cheapest shares first. This usually results in a larger capital gain, but because those shares have been held longer, they qualify for the lower long-term capital gains tax rate.
The catch
- Higher taxable gain: Because you are selling your oldest shares, your cost basis is the lowest. Your profit margin is the highest, leading to a larger taxable event.
Method 2: LIFO (Last-In, First-Out)
LIFO is the exact opposite of FIFO. The shares you bought most recently are sold first.
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Using the same Bitcoin example:
- Jan 1: 0.1 BTC at $40,000
- Mar 1: 0.1 BTC at $50,000
- May 1: 0.1 BTC at $60,000
Why use LIFO?
- Lower taxable gain: You sell your most recent, most expensive shares first. This results in a smaller profit margin and a lower tax bill in the short term.
- Deferring taxes: By keeping your oldest, cheapest shares in your portfolio, you defer realizing the large gains associated with them.
The catch
- Short-term gains: Because you are selling your newest shares, they are more likely to be classified as short-term capital gains, which are taxed at your ordinary income tax rate.
Method 3: Specific Identification (Specific ID)
Specific ID is the gold standard for tax-efficient trading. It allows you to manually select exactly which tax lot you want to sell at the time of the trade.
How Specific ID Works
Using the same Bitcoin example:
- Jan 1: 0.1 BTC at $40,000
- Mar 1: 0.1 BTC at $50,000
- May 1: 0.1 BTC at $60,000
Why use Specific ID?
- Maximum control: You can strategically sell shares to minimize your tax bill. For example, you can sell shares that have been held for more than a year to qualify for long-term capital gains, or sell shares with the highest cost basis to minimize your taxable gain.
- Tax-loss harvesting: You can specifically target shares that are currently at a loss to offset gains elsewhere in your portfolio.
The catch
- Manual effort: You must actively select the tax lot every time you place a sell order. If you forget, the system will default to your backup method (usually FIFO).
How to Set Up Tax Lot Accounting in Interactive Brokers
Setting up your preferred tax lot accounting method in IBKR is straightforward, but the steps vary slightly depending on whether you are using TWS (Trader Workstation) or IBKR Desktop.
Setting Up in TWS (Trader Workstation)
1. Open the Order Ticket: When you are ready to place a sell order, click on the asset you want to sell.
2. Navigate to the Tax Lot Tab: In the order ticket, look for the "Tax Lot" or "Accounting" tab. It is usually located near the bottom of the ticket. 3. Select Your Method: - For FIFO or LIFO, simply select the corresponding radio button. - For Specific ID, select the "Specific ID" radio button. A list of your available tax lots will appear, showing the date, price, and quantity of each lot. 4. Assign the Lot: If using Specific ID, click on the specific tax lot you want to sell. If you are selling a quantity that spans multiple lots, you can assign quantities to each lot manually. 5. Submit the Order: Once your tax lot is assigned, you can proceed with the order as normal.Setting Up in IBKR Desktop
1. Open the Trade Tab: Click on the "Trade" tab and search for the asset you want to sell.
2. Click Sell: Enter the quantity you want to sell. 3. Look for the Tax Lot Selector: Before you confirm the order, look for a dropdown or button labeled "Tax Lot" or "Accounting Method." 4. Choose Your Method: Select FIFO, LIFO, or Specific ID. If Specific ID is selected, you will see a list of your available lots to choose from. 5. Confirm and Submit: Complete the order.Important Note on Default Settings
While you can choose a different method for each individual trade, IBKR allows you to set a default accounting method for your account. However, this default is usually just a fallback. If you want to use Specific ID, you must manually select it for every trade. If you forget, the system will default to FIFO (or whatever your backup method is).
Strategic Implications: Which Method Should You Choose?
The "best" method depends entirely on your trading style, your tax bracket, and the current market environment.
Choose FIFO If:
- You are a passive investor who buys and holds for the long term.
- You want simplicity and don't want to manually manage tax lots on every trade.
Choose LIFO If:
- You are in a high tax bracket and want to minimize your current year's taxable income.
- You want to defer realizing gains on your oldest, cheapest shares.
Choose Specific ID If:
- You are a sophisticated trader who wants maximum control over your tax liability.
- You want to engage in tax-loss harvesting to offset capital gains.
Common Pitfalls with IBKR Tax Lots
Even experienced traders make mistakes when dealing with tax lots. Here are the most common pitfalls to avoid:
1. Forgetting to Select Specific ID
If you intend to use Specific ID but forget to select it in the order ticket, IBKR will default to FIFO. This can result in a much higher tax bill than you anticipated. Always double-check your order ticket before submitting.2. Mixing Up Short-Term and Long-Term Gains
If you sell shares that have been held for less than a year, they are classified as short-term capital gains. If you sell shares held for more than a year, they are long-term capital gains. Specific ID allows you to control this, but FIFO and LIFO do not.3. Ignoring Wash Sale Rules
If you sell a stock at a loss and buy it back within 30 days, the IRS disallows the loss under the wash sale rule. Specific ID can help you avoid this by allowing you to sell shares that are not at a loss, or by ensuring you don't accidentally trigger a wash sale.4. Not Tracking Your Tax Lots
IBKR provides excellent reporting tools, but it's still your responsibility to track your tax lots. At the end of the year, you will need to provide this information to your tax preparer. Make sure you are comfortable with the IBKR Tax Planner: How to Estimate Capital Gains Tax in PortfolioAnalyst before tax season hits.FAQ
Can I change my tax lot accounting method after I've already sold shares?
Generally, no. Once you have established a method for a particular security, you must stick with it unless you get IRS approval to change it. It's best to decide on your method before you start trading.Does IBKR automatically calculate my taxes?
IBKR provides detailed tax reports and tools like the PortfolioAnalyst, but they do not calculate your exact tax liability. You will need to use this information to file your taxes, potentially with the help of a tax professional.Is Specific ID available for all account types?
Specific ID is available for most US-based brokerage accounts. If you are using an IBKR account in another jurisdiction, the availability of Specific ID may vary. Check with your local tax regulations and IBKR support.What happens if I sell more shares than I have in a single tax lot?
If you are using Specific ID, you can assign quantities from multiple tax lots to a single order. For example, if you want to sell 150 shares and you have two lots of 100 shares each, you can assign 100 shares from the first lot and 50 shares from the second lot.Can I use different methods for different stocks?
Yes, you can use different tax lot accounting methods for different securities. For example, you could use FIFO for your long-term holdings and Specific ID for your actively traded stocks.Risk Warning
> Risk Warning: Trading stocks and cryptocurrencies involves substantial risk of loss. Tax laws are complex and subject to change. This guide is for informational purposes only and does not constitute financial or tax advice. Always consult with a qualified tax professional before making investment decisions.
If you're ready to start managing your tax lots strategically, Open an IBKR Account today.