Definition of identified shares

shares of stock or a mutual fund identified as having been bought at a particular price on a particular date. If a shareholder wishes to minimize his tax liability when selling shares, he must identify which shares were bought at what price in order to determine his cost basis. If he has acquired shares over a long period of time, through a constant dollar plan or a Dividend Reinvestment Plan, for example, he will have many shares at many different prices. By identifying the shares with the highest cost basis, he will generally pay lower capital gains taxes than if he identified shares bought at a lower cost. If shares are sold at a loss, the shareholder can pick how large or small a loss he wants to take based on which shares he identifies. In addition, if the identified shares were held for 12 months or more, the investor qualifies for long-term capital gains tax rates. If the identified shares were held for less than 12 months, he will have to pay regular income tax rates on the gain.