The FIFO method is used for selecting which lot of shares are sold in a secondary sale. This is important when you have shares in an offering that you purchased on different dates and for different prices.
Example
- On 7/1/21 You purchased 50 shares of Masterworks 100, LLC for $20 per share. We will call this Lot A.
- On 7/1/22 You purchased 25 more shares of Masterworks 100, LLC through the secondary trading platform for $18 per share. We will call this Lot B.
- On 12/1/22 you decided to sell 10 shares of Masterworks 100, LLC through the secondary trading platform for $25 per share.
- Because you only sold some of your shares and not all of them, we have to select which Lot you are disposing. The default method of accounting is FIFO, which means we have to sell off the shares that have the earliest purchase date.
- In this example, for your 12/1/22 sale, we will sell off 10 shares of Lot A since those shares were purchased earlier than Lot B.
- Since these shares were held for over 1 year, any gain or loss will be characterized as Long-term.
The FIFO gain calculation will look like this:
| Proceeds | (10 x $25) $250 |
| Cost | (10 x $20) $200 |
| Gain |
$50 |