Likely Benefits from HIFO Accounting
13 Pages Posted: 26 Sep 2012 Last revised: 9 Feb 2016
Date Written: September 25, 2012
Abstract
New IRS rules on accounting for cost basis often impose on investors a decision regarding cost basis when selling shares. We investigate in a very practical way the likely benefits from choosing the highest-in, first-out (HIFO) method for tracking shares. Our results show that for realistic scenarios where investors plan for retirement, HIFO accounting can add about 2% to the investor’s total wealth at the retirement date. Above average tax rates and greater volatility increase the value of using HIFO accounting.
Keywords: HIFO, retirement, tax
Suggested Citation: Suggested Citation
Atra, Robert and Pae, Yuntaek, Likely Benefits from HIFO Accounting (September 25, 2012). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2151955 or http://dx.doi.org/10.2139/ssrn.2151955
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