Bitcoin cost basis: FIFO, HIFO, or Specific ID.

The three methods

FIFO (first-in, first-out)

Your oldest lot gets sold first. If you bought BTCBitcoin (BTC)The ticker symbol for Bitcoin, used on exchanges and in price quotes.Full definition in 2018 at $7,000 and added in 2024 at $60,000, a sale in 2026 uses the 2018 lot first. This usually maximizes long-term gains (longest holding period) but also maximizes the gain itself (lowest cost basis).

HIFO (highest-in, first-out)

Your highest-cost lot gets sold first. The same sale above uses the $60,000 lot first, generating a smaller gain (or even a loss). HIFO is a flavor of Specific ID where the rule is "always sell the highest-cost lot." It usually minimizes current-year tax.

Specific ID

You choose which specific lot to sell. Maximum flexibility. Lets you optimize for short-term vs long-term holding period, harvest specific losses, or hit a specific tax bracket. Requires per-lot record-keeping. The IRS requires that you identify the lot at the time of sale (not retroactively at filing).

The per-wallet rule (Treas. Reg. 1.1012-1(j))

Starting tax year 2025, the IRS requires cost basis tracking on a per-wallet basis rather than across your aggregated portfolio verify×DON'T TRUST, VERIFYClaim: Final IRS regulations (Treas. Reg. 1.1012-1(j), effective January 1, 2025) require per-wallet cost basis tracking for digital assets. Rev. Proc. 2024-28 is the safe harbor for allocating existing basis to each wallet as of that date.Verify at: IRS Rev. Proc. 2024-28 ↗Section 2 of the Revenue Procedure states that the final regulations apply specific identification or FIFO to units held within a single wallet or account from January 1, 2025, replacing the "universal" multi-wallet approach.. This is a meaningful change. Before, you could pool all your Bitcoin across exchanges and self-custody and choose a method per total disposal. After, each wallet's cost basis is tracked separately.

The practical implication: when you transfer Bitcoin from Coinbase to a Ledger, the lots travel with the coins. You cannot sell from Coinbase using a basis from your Ledger lot. The IRS's view is that each wallet has its own ledger.

Most tax software (CoinTracker, Koinly, ZenLedger) updated their import logic in 2024 to handle this. If you self-track, the spreadsheet now needs a wallet column for every lot.

Which method should you use?

For most years where Bitcoin is up, HIFO or Specific ID minimizes tax. You sell the lot with the smallest gain (or biggest loss). This defers taxes to a future sale.

For years where you have a tax-loss-harvesting opportunity, Specific ID with HIFO logic lets you hand-pick lots that crystallize the largest losses. See Bitcoin tax-loss harvesting.

For estate-planning purposes, the logic points away from FIFO. Heirs get a stepped-up basis on lots held until death, whatever the holding period, so the lowest-basis lots (usually the oldest) are the ones worth keeping. FIFO sells those first. Selling higher-basis lots during life (HIFO) fits that plan better.

Default is FIFO if you do not affirmatively choose another method. Most exchanges' default reports use FIFO. If you want HIFO or Specific ID, you must identify the lot no later than each sale, either sale by sale or through a standing order with your exchange, and document the choice.

What records you actually need

For each Bitcoin lot you have ever bought:

• Date acquired
• Amount of BTC
• Cost basis in USD (purchase price plus fees)
• Wallet or exchange where it currently sits
• For each transfer between wallets, the date and the wallet pair

For each sale, retain the trade confirmation, the spot price at time of sale, and the lot you elected to sell. The IRS expects this documentation to be contemporaneous; reconstructing it five years later from incomplete exchange exports is risky if you are audited.

Common questions

Related reading

• Bitcoin tax-loss harvesting
• Bitcoin and the wash sale rule
• Bitcoin gift tax · basis carryover rules
• Bitcoin taxes · the umbrella page