Daně a legislativa ČR
The FIFO Method: How Gains from Securities Sales Are Calculated
Key takeaways
- FIFO means the oldest purchased units are treated as sold first.
- The method affects the size of the taxable gain and whether the sold units meet the three-year time test.
- With DCA or repeated purchases you have different purchase prices — FIFO determines which one is used.
- Accurate records of purchases (date, price, number of units) are the foundation for a correct calculation.
- This is not tax advice — verify the current rules with a professional.
The FIFO method (First In, First Out) states that when selling securities, the units purchased earliest are treated as sold first. This rule significantly affects the calculation of taxable gain and whether you meet the conditions for tax exemption.
How FIFO Works in Practice
Suppose you bought 10 units of an ETF in January 2023 at CZK 100 per unit and another 10 units in January 2025 at CZK 150 per unit. In October 2026 you sell 10 units at CZK 200 per unit. Under FIFO you first sell the ones from 2023:
- Purchase price: 10 × CZK 100 = CZK 1,000
- Sale proceeds: 10 × CZK 200 = CZK 2,000
- Taxable gain: CZK 1,000 — but the units from 2023 are more than 3 years old, so you meet the time test and the gain is exempt.
If you sold all 20 units, the remaining 10 would come from 2025 and would not yet meet the three-year test — you would owe tax on that gain.
Why FIFO Matters for the Time Test
When assessing whether sold units meet the three-year time test, the purchase date of the oldest lot (per FIFO) is always used. If you invest regularly (DCA), you have a different "lot" each month with a different date. The oldest lots gradually pass the three-year mark and their sale is exempt — the newest lots are not yet exempt.
Purchase Records — The Basis for a Correct Calculation
For an accurate FIFO calculation you need to record for each purchase: date, number of units, purchase price in the transaction currency, and the exchange rate to CZK. Your broker sends statements, but maintaining your own records protects you if the broker changes systems or shuts down. More on record-keeping in the article on tax records of trades.
The Value Test as an Alternative
If the total proceeds from securities sales in a year do not exceed CZK 100,000, gains are exempt regardless of the holding period. This can be useful for a smaller portfolio. Both tests are described in ETF taxes in the Czech Republic.
This article is not tax advice. Rules may change — verify the current legislation or consult a tax adviser. See also ETF taxes in the Czech Republic.
FAQ
What is the FIFO method?
First In, First Out — when selling securities, the oldest purchased units are treated as sold first. The method determines the purchase price and decides whether the sold units meet the three-year time test for tax exemption.
Can I choose a method other than FIFO?
In the Czech Republic, FIFO is the standard prescribed method for securities. You cannot freely choose which specific units you sell first — the oldest always go first. Verify current legislation with a tax adviser.
How does FIFO affect a DCA investor?
With regular purchases you have lots with different dates. The oldest lots are first to pass the three-year test — their sale will be exempt. The newest lots do not yet meet the test. That is why accurate records of every purchase are essential.