Tax bill drops FIFO rule that could raise taxes on stock sales

Investors have dodged a rule change that could have raised their tax bills when they sell stock.

The Senate-passed version of the GOP tax bill would have limited investors’ flexibility when selling shares. If investors bought shares of a company over time, the “first-in, first-out,” or “FIFO,” rule would have required that investors sell their oldest shares first when making a stock sale.

The revised GOP tax bill unveiled Friday doesn’t include the FIFO rule. That lets investors keep the flexibility to sell whichever shares they want, generally those that would create the smallest capital gains tax bill.

In a statement, Maine Republican Senator Susan Collins said she advocated for dropping the “provision that would have increased taxes on small investors by dictating the order in which stocks could be sold.”

Brokers and wealth managers argued the rule would be difficult to administer, and it might have been circumvented by opening multiple brokerage accounts for different batches of shares.

Sen. Susan Collins, R-Maine
Senator Susan Collins, a Republican from Maine, speaks to members of the media in the basement of the U.S. Capitol before a Republican policy meeting luncheon in Washington, D.C., U.S., on Tuesday, Sept. 26, 2017. Senate Republicans gave up on their last-ditch proposal to repeal Obamacare today as opposition in their own ranks ended months of fruitless efforts to gut the Affordable Care Act. Photographer: Andrew Harrer/Bloomberg via Getty Images

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