Crypto Cost Basis: FIFO, HIFO, and Specific ID

Crypto tax records

By Jamie Waters

FIFO is the fallback when you cannot adequately identify the digital-asset units sold. HIFO is not a separate IRS method. It is a specific-identification strategy that requires timely, adequate identification and supporting records under the rules that apply to the transaction.

Cost-basis identification guidance updated November 3, 2026 | 11-minute read

If you bought the same token at several prices, a sale must be matched to one or more acquisition lots. That match is easy to overlook because tax software can produce a polished report even when the source data is incomplete.

The right choice is not always the one that produces the smallest gain today. Holding period, available losses, future income, state tax, and the quality of your records can all change the answer.

FIFO, HIFO, and specific identification compared

FIFO is a fallback, not automatically a mistake

FIFO can produce long-term gains when the oldest lots have been held for more than one year. It may also produce a loss when the earliest lots have a high basis. You need the actual lot history before deciding whether FIFO helps or hurts.

HIFO is selection logic

HIFO is shorthand for selecting the highest-basis lots. The IRS rules focus on whether the disposed units were adequately identified, not on a software dropdown named HIFO.

That distinction matters. Choosing HIFO after the year ends does not automatically create a valid contemporaneous identification.

What specific identification requires after 2025

The general rule for broker-held digital assets requires identification to the broker by the transaction’s date and time, using accepted identifiers. However, IRS Notice 2026-20 extends temporary relief through December 31, 2026.

For qualifying broker-held transactions during the relief period, taxpayers can identify particular units in their own books and records by the transaction’s date and time, or record a sufficiently specific standing order before the transaction. If adequate identification is not made, FIFO applies within the account.

For an unhosted wallet, adequate records still matter. If you do not make a supported identification, the IRS FAQ default is FIFO within that wallet, regardless of when units were transferred into it.

Wallet-by-wallet and account-by-account basis

The universal or multi-wallet approach ended for digital assets held on January 1, 2025. Basis is now tracked separately for each wallet or account. Rev. Proc. 2024-28 provided a safe harbor for allocating previously unattached basis into those wallet-level pools if its conditions were met.

A broker may report gross proceeds on Form 1099-DA without reporting basis for every transaction. Proceeds alone do not establish your gain. Your ledger still needs acquisition dates, basis, transfers, fees, and the units disposed of.

Self-transfers, network fees, and lot continuity

Moving your own asset between wallets you control is generally not a sale. The original basis and holding period travel with the asset, so the transfer record must connect the sending lot to the receiving wallet.

A network fee paid in cryptocurrency can be a separate disposition of the fee units. Do not delete fee transactions just because the principal transfer is not taxable.

If ownership of the destination wallet is unknown, treat it as an unresolved item. A blockchain address shows movement, but it does not prove who controlled the destination.

A defensible lot-selection workflow

1. Reconcile the inventory first. Confirm every acquisition, disposal, income item, fee, and self-transfer.
2. Separate wallets and accounts. Do not optimize one universal pool.
3. Compare after-tax outcomes. Review basis and holding period, not only the largest available basis.
4. Make the identification on time. Follow the applicable broker procedure or satisfy the temporary relief’s records and timing requirements.
5. Keep evidence. Save broker confirmations, transaction IDs, acquisition records, and the calculation used.
6. Review the final tax forms. Reconcile Form 1099-DA information to your transaction ledger and Form 8949 schedule.

Tax software can help with the calculations, but it cannot repair missing ownership evidence or create a timely instruction after the fact. Before relying on a report, test a few disposals all the way back to their source records.

Related Bugaboo guides

• Short-term and long-term crypto capital gains
• When staking rewards become taxable income
• DeFi swaps, liquidity pools, and yield-farming records
• Crypto tax reconciliation services

Frequently asked questions

Sources reviewed

Sources for the cost-basis identification update on November 3, 2026: IRS digital-asset transaction FAQs, Rev. Proc. 2024-28, Notice 2025-7, Notice 2026-20, and the IRS digital-assets filing hub.