Four ways to decide which coins you sold
When you sell crypto, you need to identify which specific coins left your portfolio. The method you choose determines your cost basis and your tax bill.
FIFO: First In, First Out
Sells your oldest coins first.
Best when: Your earliest purchases were at higher prices (you bought high, price dropped)
Worst when: Crypto has appreciated over time (sells your cheapest coins first, maximizing gains)
Note: This is the exchange default. If you don't choose a method, you get FIFO.
LIFO: Last In, First Out
Sells your most recently purchased coins first.
Best when: You've been buying at high prices recently and want to lock in small gains or losses
Worst when: Your recent purchases have the lowest basis
Note: Can help harvest short-term losses if you bought near the top
HIFO: Highest In, First Out
Sells the coins with the highest cost basis first, regardless of when you bought them.
Best when: You want to minimize taxable gains (almost always the best choice for tax minimization)
Worst when: Rarely the worst choice, but watch for holding period effects (might sell a short-term lot instead of a long-term lot)
Note: This is usually the winning method for most crypto portfolios
Specific Identification
You manually choose which exact lot to sell for each transaction.
Best when: You want granular control over gains, losses, and holding periods
Worst when: You have hundreds of transactions (impractical without software)
Note: Gives you the most flexibility but requires detailed lot-level records
Side-by-side example
You hold 3 lots of ETH:
| Lot | Acquired | Amount | Price | Basis |
|---|---|---|---|---|
| A | Jan 2025 | 1 ETH | $2,000 | $2,000 |
| B | Jun 2025 | 1 ETH | $3,500 | $3,500 |
| C | Nov 2025 | 1 ETH | $2,800 | $2,800 |
You sell 1 ETH in March 2026 for $3,200.
| Method | Lot Sold | Basis | Gain | Holding |
|---|---|---|---|---|
| FIFO | A (oldest) | $2,000 | $1,200 | Long-term |
| LIFO | C (newest) | $2,800 | $400 | Short-term |
| HIFO | B (highest) | $3,500 | -$300 | Short-term |
| Spec ID | Your choice | Varies | Varies | Varies |
HIFO produces a $300 loss instead of a $1,200 gain. That's a $1,500 swing in taxable income from a single trade.
Which should you use?
For most people: HIFO. It minimizes your tax bill in the vast majority of scenarios. The IRS allows it through 2026 under Notice 2026-20, and starting in 2027 you can set it as your method at the exchange level.
The one exception: if HIFO would sell a short-term lot instead of a long-term lot, and the tax rate difference outweighs the basis difference, FIFO might win. Good software will show you both.
How CryptoTaxPilot handles this
CryptoTaxPilot runs both FIFO and HIFO on your full portfolio and shows you the exact dollar difference. You see short-term vs long-term breakdowns for each method. Pick the one that saves you the most, and we generate the Form 8949 using that method.