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How dropping the FIFO rule could raise taxes on stock sales

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(Bloomberg) --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.

Bloomberg News