Calculating Crypto Cost Basis (FIFO, HIFO, and Specific ID)

Cost basis is what you paid for your crypto, including any fees, and it's the number you subtract from your sale price to figure out your gain or loss.

The IRS allows several methods for tracking basis when you've bought the same coin at different prices over time: FIFO (first in, first out) assumes you sell your oldest coins first; HIFO (highest in, first out) assumes you sell the most expensive coins first, which tends to minimize gains; and Specific ID lets you cherry-pick exactly which purchase you're selling.

FIFO is the default if you don't specify a method, but it's often not the most tax-efficient choice — HIFO or Specific ID frequently produces lower taxable gains, especially in a rising market.

To use Specific ID, you generally need to identify the specific lot before the sale and have records to back it up, which is easier if you're using crypto tax software that tracks individual purchases.

Whatever method you choose, you need to use it consistently, and switching methods in a later year may require adjusting your reported basis — keep records of every purchase with the date, price, and any fees paid.