US lot identification for crypto: FIFO by default, specific ID if you record it

Since 2025 the US picks which units you sold wallet by wallet. FIFO applies unless you identify lots in time, and 2026 relief ends soon.

2026-10-17 · 7 min read

What this means for you: when you sell part of a crypto position, the units you are treated as selling set your gain, your loss and whether it is short or long term. Since January 1, 2025, US rules make that choice wallet by wallet and account by account, with first-in, first-out as the fallback whenever you have not identified lots in time [1][2].

The rule since January 1, 2025

Treasury regulation section 1.1012-1(j) applies to all acquisitions and dispositions of digital assets from January 1, 2025 [1]. It splits holdings into two groups: units held in the custody of a broker, and everything else, such as an unhosted wallet you control [1].

Before 2025, many taxpayers read the IRS FAQs as allowing a universal approach: one pool of lots across all wallets [2]. The final rules ended that. Revenue Procedure 2024-28 describes the new regime as applying specific identification or FIFO to units held within a single wallet or account [2].

Self-custody wallets: your books are the record

For units not held by a broker, you make a specific identification by recording on your own books, no later than the date and time of the sale or transfer, which units are leaving. Any identifier works if it pins down basis and holding period, such as purchase date and time or purchase price [1]. You also need adequate records showing that the identified unit actually left that wallet [1].

If you do not identify units in time, the units are treated as disposed of in order of acquisition, earliest first. The date units were transferred into the wallet is ignored; the original acquisition date counts [1].

Note that the rule covers transfers as well as sales [1]. Moving part of a wallet to another of your own wallets is not taxable [5], but it still decides which lots now sit where. If you do nothing, FIFO picks the lots that move.

Broker accounts: tell the broker, or use a standing order

For units held by a broker, you make an adequate identification by telling the broker which units to sell, no later than the date and time of sale, using an identifier the broker accepts [1]. A standing order, for example highest cost first, counts as an identification made at the time of each sale. If a broker offers only one identification method, that method is treated as your standing order [1]. Without any identification, FIFO applies within that broker account [1].

A choice such as earliest acquired, latest acquired or highest basis is not a method of accounting, so changing it later is not an accounting method change [1]. In practice this is how HIFO works in the US: it is a form of specific identification, and it only holds up if the identification is made in time and documented.

Temporary relief for broker accounts runs through 2026

Many brokers could not accept lot instructions when the rule started. Notice 2025-7 let taxpayers identify broker-held units on their own books and records during 2025, either unit by unit before each sale or through a standing order recorded before the sales it covers [3]. Notice 2026-20 extended that relief through December 31, 2026 [4].

The relief does not change broker reporting. The IRS says plainly that the basis and acquisition date a broker reports for 2026 may not match your books, and that your recorded identification governs for tax purposes when you rely on the notice [4]. As of October 2026, no further extension past 2026 has been announced that we could find, so plan on broker-communicated identifications from January 1, 2027.

The January 1, 2025 snapshot

Revenue Procedure 2024-28 offered a safe harbor to move from a universal pool to wallet-level lots by allocating unused basis to the units actually sitting in each wallet or account as of January 1, 2025 [2]. Taxpayers could use a specific unit allocation or a rule-based global allocation. A global allocation had to be described in the books before January 1, 2025, and a specific unit allocation had to be finished before the earlier of the first 2025 disposal of that asset or the 2025 return due date [2]. Allocations are irrevocable [2]. If your opening 2025 lot positions were never documented, raise it with your tax adviser rather than reconstructing them silently.

Worked example (illustrative)

How it shows up on Form 1099-DA

Brokers report a sale using the customer's adequate and timely identification; with none, they generally report the earliest units first [6]. Basis reporting is mandatory only for covered securities, broadly digital assets acquired after 2025 in a custodial account and held there until sold [6]. Units transferred in from your own wallet are usually not covered, so expect gaps and differences that your lot records must explain.

What to do

• Keep tax lots per wallet and per broker account, not in one pool.
• Record identifications or a standing order before trades and transfers, with a timestamp you can show an examiner.
• Decide now how you will instruct each broker from January 1, 2027, when the 2026 relief ends unless extended.
• Reconcile each 1099-DA to your lot records and keep a list of differences with reasons.
• Keep your book lot method separate from tax lot relief; they can differ.
• Confirm your January 1, 2025 basis allocation is documented.

This is general information, not tax advice; lot choices interact with your full tax position.

Sources

1. 26 CFR § 1.1012-1 - Basis of property. (Legal Information Institute, Cornell Law School (eCFR text))
2. Rev. Proc. 2024-28: Guidance for taxpayers to allocate basis in digital assets to wallets or accounts as of January 1, 2025 (Internal Revenue Service)
3. Notice 2025-7: Temporary relief under section 1.1012-1(j)(3)(ii) (Internal Revenue Service)
4. Notice 2026-20: Extension of temporary relief under section 1.1012-1(j)(3)(ii) (Internal Revenue Service)
5. Frequently asked questions on virtual currency transactions (Internal Revenue Service)
6. Instructions for Form 1099-DA (2026) (Internal Revenue Service)

General information for finance teams, current as of publication. Not legal, tax or accounting advice.

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