Cross Strategy Tax Lot Optimization

When to Use

Use this skill in multi-strategy funds, wealth-management engines, and unified tax-managed accounts where several sub-strategies trade the same asset universe under a single US tax entity. A sell order placed without a specific-lot identification is charged against the earliest lot acquired — FIFO — by default under Treas. Reg. § 1.1012-1(c)(1)(i), which often realizes short-term gains that a higher-basis lot would have avoided.

This module:

• Ranks open tax lots by HIFO (highest cost basis first) or LTCG-preferring order, implemented as Specific Lot Identification.
• Nets offsetting sub-strategy orders internally so only the residual is routed externally and only the residual is treated as a disposition.
• Screens the resulting loss lots against the IRC § 1091 61-day window (30 days before the sale, the sale date, 30 days after) and reports a quantity-limited disallowance.

When NOT to Use

• § 475(f) mark-to-market electors. For securities in an elected trading business, gains and losses are ordinary, and the wash-sale rules and capital-loss limitations do not apply (IRS Topic 429). Applying this skill's wash-sale screen there produces a disallowance that does not exist. See mark-to-market-election-for-active-traders-us.
• Non-US tax entities. Every rule implemented here is US federal. Other jurisdictions use different matching rules (for example a same-day/30-day share-pooling regime rather than HIFO), and state treatment may differ from federal.
• Pods that are separate tax entities. This module assumes one taxpayer. If pods file separately, an internal cross is a real transaction between two taxpayers and one pod's buy does not create a wash sale for another.
• Cent-exact tax filing. Monetary values are float. Use this for lot selection, then re-derive reportable figures in a decimal ledger — see automated-tax-lot-reporting-pipeline.

Prerequisites

• Open tax-lot inventory carrying lot_id, strategy_id, symbol, acquisition_date (YYYY-MM-DD), days_held, cost_basis_per_share, and quantity.
• Current market price for the target security.
• Operational prerequisite for anything other than FIFO: an adequate identification must reach the broker no later than the earlier of the settlement date or the settlement time required by Exchange Act Rule 15c6-1 — T+1 for most US equities since 28 May 2024 — or a standing instruction on the account (Treas. Reg. § 1.1012-1(c)(8)). Without it the IRS treats the sale as FIFO regardless of what this module selected.
• Known replacement purchases across all sub-strategies for the traded symbol, with signed day offsets relative to the loss sale.

Workflow

1. Net cross-strategy orders first. Call net_cross_strategy_orders(orders) for the symbol. The internally crossed quantity never leaves the tax entity, so it realizes nothing; only net_quantity is a disposition. Running lot selection on the gross sell quantity double-counts realized losses and overstates harvested capital losses.
2. Select the method deliberately. HIFO_MIN_TAX maximizes near-term loss realization; LTCG_OPTIMIZED takes long-term lots first to pay the preferential rate, then the highest basis within each holding-period bucket; FIFO is the statutory default. An unrecognized method string raises — it is never silently downgraded to FIFO.
3. Register replacement purchases with signed offsets. register_replacement_purchase(symbol, strategy_id, days_from_sale, quantity) — negative for buys before the loss sale, positive for buys after, 0 for same-day. The post-sale side matters most: a pod that buys back the day after another pod harvests a loss triggers § 1091 just as surely as a pre-sale buy.
4. Run optimize_sell_order. Pass sale_date whenever you have it: without it the long-term test falls back to days_held > 365, which misclassifies any lot whose holding period spans a leap day. Use dry_run=True to score several methods against the same inventory before committing.
5. Escalate the disallowance. total_disallowed_loss_usd is this sale's § 1091 disallowance only. The offsetting basis increase on the replacement shares (§ 1091(d)) and holding-period tacking (§ 1223(3)) are not applied here — hand the executions to wash-sale-rule-tracking-us to close the loop.

Full procedure: see references/workflows.md. Standards reference: see references/standards.md. Printable pre-flight checklist: see assets/checklist.md.

Common Pitfalls

• Selecting HIFO without identifying the lot to the broker. The selection is only respected if adequate identification is delivered by the earlier of settlement date or the Rule 15c6-1 settlement time (T+1). A HIFO decision made internally on T+2 is legally FIFO, and the realized gain on the 1099-B will not match the internal ledger.
• Scanning the wash-sale window backwards only. IRC § 1091 covers 30 days after the loss sale as well as before. Harvesting a loss in Pod A on Monday and letting Pod B rebalance into the same name on Tuesday disallows the loss.
• Assuming internal netting launders the wash sale. Crossing Pod B's buy against Pod A's sell removes the market impact, not the tax event. Where the pods are separate taxpayers the buy is still a replacement purchase.
• Taxing the gross rather than the net. Pod A sells 1,000 and Pod B buys 600 inside one entity; only 400 shares are disposed of. Feeding 1,000 into lot selection invents 600 shares of realized loss that no return can claim.
• Treating the disallowance as all-or-nothing. § 1091 disallows the loss only on shares actually replaced. Replacing 40 of 100 loss shares disallows 40%; the rest stays deductible.
• Using days_held > 365 as the long-term test. The statutory test is "more than one year". A lot bought 1 Jan 2024 and sold 1 Jan 2025 is 366 calendar days old but is still short-term.
• Flagging profitable sales as wash sales. A wash sale requires a realized loss. Warning on a gain lot inside the window trains operators to ignore the alert.

Verification

• Instantiate CrossStrategyTaxLotOptimizer. Add three AAPL lots: A ($150, acquired 2025-01-01, 400 days), B ($200, 2025-10-01, 100 days), C ($100, 2025-12-01, 50 days). At $180, HIFO_MIN_TAX for 100 shares must select Lot B and realize a $2,000 short-term loss with no wash sale flagged.
• Register a replacement buy at days_from_sale=25, quantity=40 and re-run: exactly $800 of the $2,000 loss must be disallowed and $1,200 must remain deductible.
• Net SELL 1000 / BUY 600 and confirm net_quantity == 400 and internally_crossed_quantity == 600.

python -m unittest discover -s skills/cross-strategy-tax-lot-optimization/scripts

Related Skills

• wash-sale-rule-tracking-us
• fifo-vs-specific-lot-tax-accounting-methods
• mark-to-market-election-for-active-traders-us
• automated-tax-lot-reporting-pipeline