Specific Lot Identification
Specific Lot Identification ('Spec ID') is a tax-lot relief method where the taxpayer designates the exact lots to be sold on each trade, overriding the account's default method. It is the only method that allows fully surgical tax outcomes — selecting any combination of lots to optimize for short/long mix, basis targeting, or wash-sale avoidance.
Spec ID is the most powerful and the most demanding lot-relief approach. Demanding because it requires per-trade lot selection at trade entry — the taxpayer (or the tax-aware engine acting on their behalf) must specify which lots to sell before the trade settles, and the broker must honor that selection on the trade confirmation. Most retail broker UIs make this awkward; institutional tax-aware platforms (Aperio, O'Shaughnessy / Canvas, Smartleaf) automate it.
The outcome control Spec ID enables is surgical. A TLH engine can sell exactly the lots producing the largest harvestable losses while leaving high-basis lots untouched. A gain-harvest into the 0% LT bracket can target only LT lots with specific basis, avoiding the ST high-basis ones. A position trim during portfolio rebalancing can intentionally select for short-term lots in years when ST losses can offset other ST gains. None of these are achievable with a default method.
The operational cost is the lot-level inventory and per-trade audit. Every sale must record which specific lot IDs were dispositioned, and the 1099-B must reflect the elected lots — not the default. Reconciliation between the engine's intended lots and the broker's executed lots is a real ongoing task; the broker's confirmation is the source of truth, and engines must verify rather than assume the election was honored.
Synthetic households configured for Spec ID need lot-level inventory granularity and a realistic per-trade lot-selection log. Test scenarios should include the 'happy path' (engine selects lots, broker honors the selection cleanly) and the 'reconciliation path' (broker fails to honor the election, defaults to FIFO, requires correction). The more sophisticated TLH scenarios test against this specific reconciliation flow.
Common pitfalls
- Trusting the default method to behave like Spec ID — they don't; Spec ID requires explicit per-trade designation.
- Failing to record the elected lots before settlement — once the trade settles without designation, the default applies and cannot be retroactively overridden.
- Treating the 1099-B as authoritative on lot identities without verification — broker errors in honoring Spec ID elections happen and require correction filing.
- Selecting lots that span open wash-sale-disallowed positions — the engine has to resolve wash-sale carrying basis adjustments before lot selection.
Examples
Position has 8 lots; engine identifies 3 lots with combined $4,200 unrealized loss. Trade ticket designates exactly those 3 lots by ID; all other lots remain untouched. Broker confirmation must show the 3 designated lots and not pick up other lots automatically.