Average cost basis for tax

Question

Trying to understand how average cost basis works. What I didn't find is if after a sale the computation of cost basis will change for a security: I calculate the cost basis as average cost during all periods I bought the security and any time a new buy happens I have a new basis.
But when I sell securities do I have to take out the sold shared from my history of transactions in FIFO order ? (e.g. I sold 10 shares from january of 2020, from now on the cost basis will not take those 10 oldest shares into account ?)

Bob Baerker · Accepted Answer

Since no country was specified, this is a US centric answer:
Suppose over time you make multiple purchases for a different number of shares at different prices.  You have acquired a total of 100 shares for a total cost of $5,000.  Your average cost $50.00 per share.  Only a new purchase at a different price (not $50) will change that.
You now sell 10 shares at $60, receiving $600.  Your gain is $10 per share and the taxable amount is $100 (non sheltered account). You now own 90 shares with an average cost of $50 per share.
The tricky part is keeping track of the holding period of the shares remaining.  Your shares are considered to be sold in the order you acquired them. If the first 10 shares were bought more than a year ago, it's a long term gain.  If less than a year, short term.  If more and less then it's a mix, apportioned accordingly.
And once you have used the average cost method, your shares remain averaged for future transactions.

Average cost basis for tax

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