Crypto Cost Basis Methods: FIFO, HIFO, and Specific ID
The cost basis method you choose can swing a client's tax bill significantly. Here's how the main approaches compare.
The three common methods
- FIFO (First In, First Out): the oldest lots are sold first — simple and the common default.
- HIFO (Highest In, First Out): the most expensive lots are sold first, often minimizing near-term gains.
- Specific Identification: you choose exactly which lot is sold, maximizing control.
Records make or break it
Specific Identification and HIFO only hold up with detailed, contemporaneous records of each lot's acquisition date, amount, and cost. The IRS digital asset guidance requires you to substantiate basis.
No clean records, no defensible method. Start with a complete intake and document checklist.
Gains ultimately flow to Form 8949 — so the method and the records must agree.
Frequently asked questions
Which cost basis method is best for crypto?+
It depends on the client’s goals and records. HIFO often minimizes near-term gains, but Specific Identification requires detailed records to defend each lot.
Can I change cost basis methods year to year?+
Method choices must be applied consistently and supported by adequate records. Consult current IRS guidance before switching approaches.
Ready to streamline crypto tax intake?
Start your 14-day free trial — collect organized digital-asset records from every client.
Start free trial