FIFO vs. LIFO vs. HIFO: Crypto Accounting Methods Explained

FIFO, LIFO, and HIFO decide which crypto counts as sold when you've bought the same coin at different prices and sell only part of it. The method changes your cost basis, your gain or loss, and whether that gain is short-term or long-term.

If you don't identify the specific units you sell, the IRS generally treats them as sold first in, first out (FIFO). LIFO and HIFO are ways of making a specific identification. You can use them only if you identify the units by the required time and keep records that support it. This guide compares HIFO vs. FIFO vs. LIFO and covers what the IRS requires for each.

In the US, crypto is treated as property for federal income tax purposes. Selling crypto held as an investment, swapping it for another coin, or spending it generally creates a capital gain or loss equal to your proceeds minus your cost basis. Your basis is generally what you paid, including eligible acquisition fees. Gains on crypto held more than one year are long-term, and gains on crypto held one year or less are short-term.

Capital losses offset capital gains, and up to $3,000 of net capital losses a year ($1,500 if married filing separately) may offset other income, with the rest carried forward.

When you hold several lots of the same coin bought at different prices, the IRS lets you choose which units, or "tax lots," you sold, provided you specifically identify them and can substantiate their basis. The IRS covers this in its FAQs on virtual currency transactions (Q39 to Q41) and, for transactions on or after January 1, 2025, its FAQs on digital asset transactions.

FIFO, LIFO, and HIFO are three methods for choosing which lots to select. Each can match a different basis and holding period to the same sale.

Since January 1, 2025, identification works wallet by wallet and account by account under Treasury Regulation §1.1012-1(j). Units in one wallet or exchange account can't be matched against purchases held in another. Revenue Procedure 2024-28 provided a safe harbor for allocating remaining basis to each wallet or account as of that date.

If you don't adequately identify the units you sell, FIFO generally applies within that wallet or account. With the required records, you can use LIFO, HIFO, or another specific identification.

Pro tip: Are you a US taxpayer active in crypto? Bookmark our guide to cryptocurrency tax rates to understand the difference between short-term and long-term gains before choosing which lots to sell.

In simple terms, these approaches determine which coins are treated as sold first:

• FIFO (First In, First Out): You treat your oldest acquired coins as the first ones sold.

• LIFO (Last In, First Out): You select your most recently acquired coins first.

• HIFO (Highest In, First Out): You select the coins with the highest adjusted cost basis per unit first.

LIFO and HIFO aren't separate IRS accounting methods. They're forms of specific identification, and there's no annual election to make. You identify units for each sale within the wallet or account that holds them, and you need records supporting any identification other than the default FIFO treatment.

What is FIFO?

FIFO stands for First In, First Out. Think of it like rotating milk in a grocery store: the oldest in the fridge, the oldest out front.

It's often the easiest way to handle your records, and the IRS generally uses it by default if you don't adequately identify different units.

What is LIFO?

LIFO means Last In, First Out. Instead of selecting your oldest coins first, you select the most recently acquired units.

If your recent purchases cost more than your older ones, LIFO matches a higher basis against the sale. If they cost less, it matches a lower basis. LIFO requires valid specific identification.

What is HIFO?

HIFO stands for Highest In, First Out. It selects the units with the highest adjusted cost basis per unit from the available lots in a wallet or account.

This usually produces the smallest immediate gain, or the largest loss, when those units are sold. Like LIFO, HIFO requires specific identification, and you can't choose different lots retroactively after the sale.

Under FIFO, the coins you acquired first are considered sold first.

Suppose you bought one ETH for $2,000 and another for $3,000, then sold one ETH for $3,500. Ignoring fees, FIFO treats the $2,000 ETH as sold and produces a $1,500 capital gain.

How do you calculate crypto capital gains using FIFO?

The formula is:

Capital gain or loss = Proceeds − Adjusted cost basis

Proceeds generally equal what you received minus eligible selling costs. Your basis generally includes what you paid plus eligible acquisition fees.

Consider one wallet holding two lots of ETH:

• Lot A: In February 2024, you buy 1 ETH for $2,000 and pay a $20 acquisition fee. Basis: $2,020.

• Lot B: In February 2026, you buy 1 ETH for $3,000 and pay a $30 acquisition fee. Basis: $3,030.

• Sale: In June 2026, you sell 1 ETH for $3,500 and pay a $35 selling fee. Proceeds: $3,465.

Under FIFO, Lot A is treated as sold.

$3,465 − $2,020 = $1,445 capital gain

That's a long-term capital gain because you held Lot A for more than one year.

Identifying Lot B instead, which LIFO and HIFO would both select in this example, produces a $435 short-term gain ($3,465 − $3,030).

The reported gain is smaller, but it's subject to ordinary income tax rates rather than the preferential rates generally available for long-term capital gains. A smaller gain doesn't automatically mean a smaller tax bill.

Report applicable capital transactions on Form 8949 and Schedule D.

What are the pros and cons of FIFO?

Pros: FIFO applies when you don't adequately identify specific units, so you don't need to make a separate lot identification at the time of sale. Because older lots go first, gains are also more likely to qualify for long-term treatment.

Cons: If your older lots cost less than your newer ones, FIFO reports a larger gain on the current sale. You still need adequate records to substantiate the basis and the acquisition date for the selected units.

With LIFO, the most recently purchased coins are treated as sold first.

Suppose you buy one BTC at $25,000, then another at $40,000, and eventually sell one at $45,000.

If you properly identified the $40,000 coin as the one sold by the required time, you report a $5,000 gain before fees.

Meanwhile, your $25,000 coin remains in your holdings. Selling it later may result in a larger gain if Bitcoin's price remains elevated.

Is LIFO better than FIFO?

Not necessarily. LIFO produces a smaller gain on the current sale when your newer lots cost more than your older ones. But recent lots are more likely to have been held for one year or less, so that smaller gain may be short-term and taxed at ordinary income rates.

FIFO may report a larger gain that qualifies for long-term rates and ultimately costs less in tax.

Compare the actual lots, their holding periods, and your applicable tax rates before assuming that a smaller gain means a smaller tax bill.

What are the pros and cons of LIFO?

Pros: LIFO matches your most recent purchases first. When those purchases have a basis closer to the current market price, the gain or loss on the current sale may be smaller. Your older lots remain available for later sales.

Cons: LIFO requires specific identification supported by records. Recent lots are more likely to produce short-term gains, and retaining older, lower-basis lots may result in larger taxable gains on future sales.

Suppose you bought three batches of the same token, all still held in one wallet or account:

• First batch: $10 per token

• Second batch: $20 per token

• Third batch: $30 per token

You sell some of those tokens for $35 apiece.

Assuming there are no additional basis adjustments or transaction fees, HIFO selects the $30 batch first.

$35 − $30 = $5 capital gain per token

The $10 and $20 batches remain in your holdings with their lower basis.

Under FIFO, assuming those batches were acquired in the listed order, the first tokens sold would have a $10 basis, resulting in a $25 gain per token.

That's why HIFO often reduces the gain reported on the current sale.

What are the pros and cons of HIFO?

Pros: HIFO selects your highest-basis units first, so it generally produces the smallest immediate gain or largest loss among the available lots.

Cons: HIFO leaves lower-basis lots for later, potentially creating larger gains on future sales. It often defers gains rather than eliminating them.

Your highest-cost lots may also be recent purchases. As a result, HIFO might produce a short-term gain where FIFO would select an older, long-term lot.

HIFO requires records supporting the units selected, with the identification made by the applicable deadline for each sale.

What is the average cost method in crypto accounting?

For US taxpayers, the average cost method generally isn't available for ordinary cryptocurrencies such as Bitcoin and Ethereum.

The IRS permits average basis for certain digital assets that are also qualifying tokenized securities, provided the underlying security meets the applicable requirements under Section 1012(c) or (d). For ordinary cryptocurrency, taxpayers generally use specific identification when they can adequately identify the units sold and FIFO when they can't.

See the IRS instructions for Form 1099-DA, under "Average basis method."

Canada generally uses an adjusted cost base approach for identical properties, which pools the cost of the same crypto asset across purchases.

The UK uses pooling rules, often called the Section 104 pool, along with specific matching requirements such as same-day and 30-day matching rules.

What is the best cost basis method?

There isn't one best approach for everyone. FIFO needs no separate specific identification and applies by default. LIFO and HIFO require valid identification of the selected lots.

Cost basis is only half the comparison. The holding period of each lot determines whether a gain is short-term or long-term, and the lots you don't sell now retain their basis for future transactions.

TokenTax helps you compare results across different supported lot-selection approaches so you can assess the tax consequences before making a decision.

Can I switch my accounting method?

Yes, but there's no formal accounting-method election to make or change.

You identify units on a sale-by-sale basis, so you may use FIFO for one disposal and a different specific identification for another, provided the applicable requirements are met. If you can't substantiate an identification, FIFO generally applies.

For crypto held in a self-custody wallet, the IRS requires you to identify the units in your own books and records no later than the date and time of the sale, disposition, or transfer. You must also maintain records supporting the identification.

For broker-held crypto, the permanent rules generally require you to identify the units to the broker by the time of the transaction or establish an appropriate standing instruction. However, IRS Notice 2026-20 extends temporary relief through December 31, 2026.

Under that relief, eligible taxpayers may identify broker-held units in their own records no later than the transaction date and time, or establish a sufficiently detailed standing order in their records before the transactions it covers. They don't necessarily need to communicate the identification to the broker.

Taxpayers relying on the Revenue Procedure 2024-28 safe harbor must also satisfy its applicable requirements.

These rules don't allow you to reassign lots after the fact merely because a different choice would produce a smaller tax bill.

Keep your own records even if your broker issues Form 1099-DA. Starting with 2026 transactions, brokers generally must report basis for covered digital assets. These are generally assets acquired after 2025 and held continuously in the same broker account.

Older lots and assets transferred from other accounts are generally noncovered, so their basis may be absent from the form.

During the temporary relief period, a qualifying timely identification in your own records determines the units sold for federal income tax purposes even if the broker's reported basis doesn't match.

When it comes to juggling different crypto accounting methods, TokenTax offers several tools:

• Data syncing: Import transactions from supported exchanges and wallets, so you're not stuck with manual entry.

• Detailed reports: Compare your gains and losses under FIFO, LIFO, HIFO, and TokenTax's proprietary Minimization approach.

• Reconciliation services: If you're dealing with missing cost bases, a large trade count, or confusing cross-chain transfers, TokenTax's crypto tax professionals can help reconcile your transaction history.

FIFO generally applies unless you adequately identify the units you sell. TokenTax organizes your transaction records by wallet and account, helping you calculate gains and losses and prepare Form 8949.