FIFO methodFirst In, First Out for selling shares

FIFO (First In, First Out) is the rule that, when you sell securities bought at different prices, the ones acquired earliest are treated as sold first. Which units count as sold determines the cost of the sale, and therefore the realized gain.

Example

• Lot 1: you buy 5 shares at 100.
• Lot 2: later you buy 5 shares at 120.
• You sell 6 shares at 150.

Under FIFO you sold the whole first lot and one share from the second. The realized gain is 5 × (150 − 100) + 1 × (150 − 120) = 280. The remaining 4 shares keep a cost of 120 each.

FIFO and tax in Poland

The Polish Personal Income Tax Act (art. 24 sec. 10) requires the FIFO rule when selling securities bought at different prices, generally applied separately for each securities account. That is why Polish brokers issue the PIT-8C form on a FIFO basis, and investors with foreign brokers have to work out their costs the same way.

Many brokers show an average purchase price in their app. In the example above it is 110, so the gain on selling 6 shares would look like 240 rather than 280. The total result once all shares are sold is the same under both methods, but the split between tax years can differ, and FIFO is what counts for PIT-38.

The cost of the shares sold also includes the commissions on buying and selling them, recognized in the year of sale.