How to Sell Fractional Shares From Your Portfolio

Fractional shares represent a portion of a company’s stock that is less than one full share. Investors commonly acquire these through dividend reinvestment plans (DRIPs), stock splits, corporate mergers, or direct dollar-based investing. This approach allows investing a specific dollar amount rather than buying whole shares, making higher-priced stocks more accessible. This article guides you through selling these shares.

Brokerage Policies and Fractional Shares

The ability to sell fractional shares, and the specific methods for doing so, are largely dependent on the individual brokerage firm’s policies. While many brokerages now support fractional share trading, their approaches can vary significantly. Some platforms allow selling only the entire fractional amount, while others might permit selling a specific portion of your fractional holdings. Some brokerages might also have minimum sale requirements.

It is important to note that fractional shares typically cannot be transferred between brokerage firms; instead, they usually must be sold, and the proceeds then transferred to a new account. To understand how your specific brokerage handles fractional shares, review their account agreement, frequently asked questions (FAQ) section, or contact their customer support directly. Some firms execute fractional share orders in real-time, while others aggregate customer orders throughout the day and then execute them as whole shares, which could impact the price received.

Placing a Sell Order

Once you understand your brokerage’s policies, placing a sell order typically involves several steps within your online account. Log in and navigate to your portfolio or holdings section.

Locate the specific stock position with fractional shares you wish to sell. Select it to view details, then choose “sell.” Enter the quantity of shares, either the entire fractional amount or a specific partial quantity, depending on your brokerage’s policy.

Next, select the order type. Market orders are common for fractional shares, instructing the brokerage to sell immediately at the current market price. Limit orders, which set a minimum price, are not always available.

Review order details, including estimated proceeds and fees, before confirming the sale. Upon confirmation, your order is placed, and you should receive an order confirmation. Proceeds typically settle within one business day (T+1).

Tax Considerations

Selling fractional shares carries tax implications, primarily related to capital gains and losses, similar to selling whole shares. The IRS considers the difference between your sales proceeds and your cost basis as either a capital gain or a capital loss. A capital gain occurs if you sell for more than your adjusted basis, while a capital loss results if you sell for less.

The cost basis is generally the original price paid for shares, plus any commissions or fees. For fractional shares acquired through dividend reinvestment plans or stock splits, the cost basis is typically allocated proportionally. If you cannot identify specific shares sold, the IRS generally requires using the First-In, First-Out (FIFO) method.

Brokerages report sales of securities to both the investor and the IRS on Form 1099-B, “Proceeds From Broker, Barter Exchange, and Digital Asset Transactions.” This form details gross proceeds, and for “covered securities,” the cost basis and whether the gain or loss is short-term or long-term.

The classification of a capital gain or loss as short-term or long-term depends on the holding period. If held for one year or less, it is short-term. If held for more than one year, it is long-term. Short-term capital gains are taxed at your ordinary income tax rates, while long-term capital gains often benefit from lower tax rates. Accurately track your cost basis and holding period for proper tax reporting.