Cost Basis Method FIFO for Brokerage Accounts - Legal Basis and Practical Workarounds

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To the financial heroes out there and us everyday folk who appreciate your wisdom,

I wanted to talk about the reach of the FIFO cost basis calculation method in DE.




My understanding is that DE law requires FIFO (First-In, First-Out)

Specifically Einkommensteuergesetz (EStG) §23 Absatz 1 Nr. 2 Satz 3 EStG "dass die zuerst angeschafften Beträge zuerst veräußert wurden".


But who or what exactly does it apply to? 

  1. At the very least, for domestic brokerage accounts held by German tax residents. Thus the Finanzamt assumes FIFO for all brokerage capital gains reported.
  2. At the very most, for international brokerage accounts held by German tax residents. 
    I assume this is the case since any DE tax resident is "unbeschränkt steuerpflichtig" and these are the laws that govern that
    ... but want to be dead-sure.




If (1) and international, legal cost basis methods are allowed by the Finanzamt,

there would be a considerable tax advantage for US brokerage account holders, since they offer a wide variety of spunky methods:

LIFO (Last-in First-Out), HIFO, Specific share identification (Spec ID), and more. 

FIFO is often the standard default method, but can be easily configured in most accounts.

LIFO is a decent tax advantage for buy-and-hold investors who may need to get at some of their invested money, since the most recently invested money normally has lower capital gains than older money.


If (2), some US citizens may have been unknowingly stepping in it.
i.e. a US citizen may have been using LIFO in their taxable accounts for years.  It's tax smart after all.  Then they move to DE and become DE tax residents...

would the Finanzamt allow them to continue their bookkeeping (1) or does it immediately set up a "parallel world" of would-have-been-FIFO bookkeeping (2)? 
(I envision this like the wormhole from Sliders with a bunch of stage wind and flashing blue lights)


If the wormhole is opened and you keep your non-FIFO US accounting method, any share you sell in the US would have a different cost basis than its DE counterpart.  It would be hard to get Foreign Tax Credits to line up.

Heck, if the wormhole is opened and you stop using LIFO just before moving to DE, would the shares ever be in sync?  Or does the DE required FIFO apply only to shares sold after getting DE tax residency? 



this is a tax tip from several German forums which I haven't see here and would like to share. 

I call it "manual LIFO".


The FIFO rule only applies to an account, not to all of a person's shares that may be distributed amongst different accounts.  Not even all shares at one broker, just a specific account. Source:

" Nach Auffassung der Finanzverwaltung ist die Fifo-Methode depotbezogen zu berechnen. Auch ein Unterdepot ist ausreichend. "


So a good broker which offers sub-accounts makes manual LIFO pretty doable.  You have two sub-accounts at the same brokerage, you can transfer the shares you want to sell from account A to B, then sell all in account A or B (whichever is now only consisting of the newest shares).  Taadaa, manual LIFO!  The great thing is that you can start making use of it any time, if you haven't in the past.  You are still sticking to FIFO at all times.


(Also, this manual LIFO is either some sort of weird German loophole which will one day be shored up... or hopefully something that encourages the law to be changed so that regular ole one-account LIFO is also possible)



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You ask an interesting question and I believe you have also found a good solution to the problem.


It is true that FIFO is the assumption for securities sales but the statutory authority for this is no longer found in § 23 (which now applies FIFO only to currency transactions) but rather, in § 20 Abs. 4 Satz 7 EStG:


7Bei vertretbaren Wertpapieren, die einem Verwahrer zur Sammelverwahrung im Sinne des § 5 des Depotgesetzes in der Fassung der Bekanntmachung vom 11. Januar 1995 (BGBl. I S. 34), das zuletzt durch Artikel 4 des Gesetzes vom 5. April 2004 (BGBl. I S. 502) geändert worden ist, in der jeweils geltenden Fassung anvertraut worden sind, ist zu unterstellen, dass die zuerst angeschafften Wertpapiere zuerst veräußert wurden


The language was moved in conjunction with the introduction of the Abgeltungsteuer which made FIFO tax poison for those who had securities purchased prior to 1/1/2009 and wished to preserve their favored tax status indefinitely.


It is also correct that the FIFO treatment required is "account related"; specifically to accounts maintained in a "Sammelverwahrung" as described in § 5 of the DepotGesetz.  


This treatment was confirmed by the BMF in its comprehensive paper on the subject of the Abgeltungsteuer published in 2016:


BMF 18.1.2016  BStBl I S. 85 Tz 97 ff.



b) Fifo-Methode (§ 20 Absatz 4 Satz 7 EStG)


97 Gemäß § 20 Absatz 4 Satz 7 EStG ist bei Wertpapieren bei der Veräußerung aus der Girosammelverwahrung (§§ 5 ff. DepotG) zu unterstellen, dass die zuerst angeschafften Wertpapiere zuerst veräußert werden (Fifo-Methode). Die Anwendung der Fifo-Methode i. S. des § 20 Absatz 4 Satz 7 EStG ist auf das einzelne Depot bezogen anzuwenden. Konkrete Einzelweisungen des Kunden, welches Wertpapier veräußert werden soll, sind insoweit einkommensteuerrechtlich unbeachtlich.


98 Als Depot i. S. dieser Regelung ist auch ein Unterdepot anzusehen. Bei einem Unterdepot handelt es sich um eine eigenständige Untergliederung eines Depots mit einer laufenden Unterdepot-Nummer. Der Kunde kann hierbei die Zuordnung der einzelnen Wertpapiere zum jeweiligen Depot bestimmen.


99 Die Fifo-Methode gilt auch bei der Streifbandverwahrung


The fly in the ointmnet, however, is this sentence:


Konkrete Einzelweisungen des Kunden, welches Wertpapier veräußert werden soll, sind insoweit einkommensteuerrechtlich unbeachtlich.


Does this FIFO rule of German tax law apply to shares in foreign brokerage accounts that are not directly subject to § 5 of the DepotG?  In other words does this sentence amount to a general proscription against securities identification as allowed by US tax law and commonly practiced in US brokerages or does the prohibition against "konkrete Einzelweisungen"  apply only to shares held in German brokerage accounts?


In my view, if share identification by means other than FIFO is allowed by your foreign broker you should be allowed to compute your gain or loss using that method. My logic is simple:  if FIFO were universally applicable to all the taxpayers' holdings of a security the FIFO rule would be tied to the taxpayer individually rather than to the holdings in his various individual accounts.  Since FIFO can be thus easily and legally circumvented by identification and segregation to a separate account before the sale, it would appear not to be an absolute rule that applies to the taxpayer's universal holdings of a security. (NB: the FIFO rule with respect to currencies (§ 23 Abs. 1 Nr. 2 Satz 3) which you inadvertently referred to is not, strictly speaking, tied to accounts and may not be avoidable by use of the sub-depot or specific identification method.)


For shares held in accounts governed by § 5 of the DepotG, however, the "sub-depot solution" to segregating specific shares in order to avoid FIFO treatment is the solution acceptable to the German tax authorities.  All you have to do is get your German depot bank to accommodate you.





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@Straightpoop I am a big fan of your work and am a little flattered that you got in on this post. 


Thank you for correct references to the current law and BMF decision!  That clears up the poorly referenced Haufe link.

I did not mean to bring up FIFO for currency since that is it's own and rather unfortunate can of worms ^^  I'm just going to mentally sweep that under the rug for now.


I went down the rabbit hole to see if a typical US brokerage account meets the criteria of the account type referenced in § 20 Abs. 4 Satz 7 EStG i.e. Sammelverwahrung or Streifbandverwahrung as mentioned in BMF 18.1.2016  BStBl I S. 85 Tz 99 ff.  I glimpsed the nuts and bolts of the underlying infrastructure of financial markets along the way to basically find that, yes, nearly any brokerage account anywhere would be Sammelverwahrung or Streifbandverwahrung.  There is no practical alternative.


My understanding: Sammelverwahrung is the general system for private investors to own stocks without actually having the physical paper issued stock shares.  The shares are at a national central securities depository (CDS), which through of string of contracts and organizations (with clearing-houses and broker-dealers) eventually connect a number of share to an individual brokerage account owner.  Streifbandverwahrung would be if those shares were somehow physically separated into a little group to denote that it belongs to a specific person's.  But anyone normally just has access to a number of shares and not to any specific physical shares.  This system allows us all to trade stocks easily and cheaply compared to the hassle of actually moving pieces of paper around.  Actually kind of neat!


I was hoping for a way out of § 5 DepotG by definition, maybe due to some odd Americanism, but it's not the case.


I was also hoping that the fly in the ointment would be a little black exfoliating orb but my Juristendeutsch just isn't up to snuff:
Konkrete Einzelweisungen des Kunden, welches Wertpapier veräußert werden soll, sind insoweit einkommensteuerrechtlich unbeachtlich.

I'd wager that "insoweit" makes this statement refer to the context of a single account and not to any and all shares owned by a person.  As we know, this is also not the practice due to sub-accounts.  I wonder:  if a non-German account openly offers the methods of LIFO, HIFO, and so on and the customer took them up on that offer, would that be considered a "konkrete Einzelweisung" since it may be a default set-up (however unlikely), doesn't require any explicit action of the customer as to what exactly should be sold, and is a general offer that extends to anyone indiscriminately.  If that were true, this statement would only prohibit specific share identification, and that only maybe.  But I am just wondering over here.


With or without the exact interpretation of that sentence, I agree with your general reasoning: the German FIFO applies to accounts and not to all shares of a taxpayers. 

The § 20 Abs. 4 Satz 7 EStG alone does not read this way to me given my newfound and crude knowledge of Sammelverwahrung as outlined above, but the BMF decision makes it clear in 98 ff.  It helps that "manual LIFO" is an accepted practice in Germany for several years.  I guess it is a law that most Germans never consider and therefore reasonably effective in getting the government higher taxes than if there was officially LIFO, although it is a bit odd for a law to ultimately be about account-specific bookkeeping and substantially nothing more.

That reasoning also avoids ripping a hole in the fabric of the brokerage-cost-basis-method continuum for anyone from the US who happened to move to Germany later in life (that is, until that person unwittingly has a washsale, as far as I can tell).   Not that this person was in anyway considered during the making of this law, but it is a nice outcome.  Plus, it also more convenient for anyone who has a US account who might have otherwise had performed manual LIFO just to be safe.


Thank you again!



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