A tax lot adjustment is a change made to the record of a tax lot, the block of securities acquired in a single purchase, each with its own quantity, cost and acquisition date. Custodians, brokers and fund accountants keep positions lot by lot so that the capital gain or loss on a later sale can be worked out and reported for capital gains tax. When an event alters what the investor holds without a sale, the lots must be restated.
Most adjustments follow corporate actions. A stock split or reverse stock split changes the quantity and the cost per share of every lot while leaving total cost unchanged. A spin-off divides the original cost between the parent and the new shares, a return of capital reduces cost, and a cash-in-lieu payment removes a fractional share. Tax rules that disallow a loss, such as wash sale rules, can also move cost from one lot to another.