FIFO vs. LIFO vs. HIFO for Crypto Taxes

FIFO, LIFO, and HIFO are cost-basis methods that decide which coins you're treated as selling when you dispose of crypto — and that choice directly changes your capital gain or loss. FIFO sells your oldest coins first, LIFO sells your newest first, and HIFO sells the highest-cost coins first to minimize the reported gain.

Why cost basis matters

The IRS treats cryptocurrency as property, so every sale, swap, or spend is a taxable disposal. Your gain or loss is the sale proceeds minus your cost basis (what you paid, plus fees). When you've bought the same coin at different prices over time, you have multiple "lots" — and you need a rule to decide which lot you sold. That rule is your cost-basis method. For the bigger picture, see how cryptocurrency is taxed.

The three methods, side by side

• FIFO (First In, First Out): the earliest coins you acquired are the first ones sold. This is the default assumption if you don't specifically identify lots.
• LIFO (Last In, First Out): your most recently acquired coins are sold first.
• HIFO (Highest In, First Out): the coins with the highest purchase price are sold first, which typically produces the smallest gain (or largest loss) in a given year.

A quick example

Suppose you bought 1 ETH at $1,500, another at $3,000, and a third at $2,000, then sold 1 ETH for $2,500.

Same sale, three very different tax outcomes. HIFO shows the smallest current-year gain — but remember, the low-basis coins you didn't sell are still sitting in your account and will be taxed later. Cost-basis methods shift when you recognize gains, not whether you ever do.

What actually applies under 2026 rules

LIFO and HIFO aren't separate elections you check on a box — they're forms of Specific Identification. To use them, the tax rules require that you identify the exact units being sold at the time of the transaction, with records showing the acquisition date, basis, and disposal details of each lot. If you can't specifically identify units, you must use FIFO by default.

Two changes make records more important than ever:

• Per-wallet (per-account) cost basis for 2025 and later. You can no longer pool all your holdings of a coin into one universal basis. Basis is now tracked account by account and wallet by wallet, so your lots — and which method applies where — are calculated within each location.
• Form 1099-DA. Starting with the 2025 tax year, brokers and many exchanges report digital-asset proceeds to the IRS on the new 1099-DA. Cost-basis reporting phases in afterward, so the figures on your return need to reconcile with what the IRS receives.

Which method should you use?

There's no single "best" method — it depends on your lots and your goals:

• HIFO generally minimizes your current-year taxable gain, which can be attractive in a year with large disposals. It requires disciplined lot-level records.
• FIFO is the simplest and the safe default. In a long, rising market it often surfaces long-term gains sooner, which can qualify for lower long-term rates if you held over a year.
• LIFO sits in between and can help when your newest coins have a higher basis.

Holding period matters too: coins held more than a year get long-term capital gains rates, so the "best" lot for tax purposes isn't always the highest-cost one. A method that saves tax today can push a larger gain into a future year — this is where tax strategy and tools like tax-loss harvesting come in.

Consistency and record-keeping

Whatever method you use, apply it consistently and keep contemporaneous records that support each disposal — especially for Specific Identification methods like HIFO and LIFO. This matters most for activity across DeFi and staking, where staking rewards create new lots at their fair market value on receipt (taxed as ordinary income), each with its own basis and acquisition date. For more on wallets, exchanges, and forms, browse our exchange guides and crypto tax basics hubs.

This article is general information, not tax advice. Consult a qualified professional about your specific situation.