Crypto Cost Basis in 2026: FIFO, Specific ID, and Per-Wallet Records

Service boundary: This guide explains reporting of client-supplied records. Monaco CPA does not monitor portfolios, recommend or execute tax-loss harvesting, select investments, or send reminders.

In This Article

1. Key Takeaways
2. What Is Crypto Cost Basis?
3. What Is FIFO and How Does It Work for Crypto?
4. What Is Specific Identification and How Does It Work for Crypto?
5. How Do FIFO and Specific Identification Produce Different Reporting Results?
6. What Is the Per-Wallet Basis Tracking Rule?
7. What Changes for Sales After 2025?
8. How Do I Rebuild My Crypto Cost Basis for My TY2025 Return?
9. How Does Cost Basis Method Affect Tax-Loss Harvesting?
10. How Do I Handle the 2026 Mandatory Crypto Basis Reporting Rules?
11. Need Help With Crypto Cost Basis?
12. Frequently Asked Questions About Crypto Cost Basis
13. Request a Crypto Basis Scope

Key Takeaways

• The regulatory default-order rule applies when no timely adequate identification controls. A generic software setting or later method selection does not replace the disposition-time identification and record requirements.
• Specific Identification can identify which lot is disposed of when its timing, records, and communication requirements are met. Notice 2025-7, extended by Notice 2026-20, permits eligible book-and-record methods for broker-custodied units through December 31, 2026. The notices do not certify that every broker will support every requested identifier beginning in 2027.
• Per-wallet, per-account basis tracking is now mandatory under Treas. Reg. §1.1012-1(j), effective January 1, 2025 (Rev. Proc. 2024-28 provides the one-time safe harbor for allocating pre-2025 basis). You can no longer aggregate basis across all wallets and exchanges as one pool.
• Mandatory broker basis reporting generally applies only to a covered security acquired after 2025 through a qualifying acquisition in the reporting broker's custodial account and held there until that broker effects the disposition. Pre-2026 and transferred-in lots are noncovered, so required basis can remain absent from Form 1099-DA, although a broker may report noncovered basis voluntarily.
• Prior-year wallet and exchange records support basis. A lot held as of December 31, 2025 is noncovered and requires taxpayer-supplied basis when later sold.

For Tax Year 2025, broker basis reporting on Form 1099-DA was voluntary. Mandatory basis reporting begins for covered digital assets acquired on or after January 1, 2026 when the covered-security and custody requirements are met. Basis, unit ordering, and per-wallet tracking rules apply separately from whether a form reports basis.

This article covers the default-order and Specific Identification mechanics, the per-wallet tracking requirement, and the records relevant to covered-asset reporting that began January 1, 2026. The crypto tax services can include reporting of documented completed transactions and per-wallet reconciliation; Monaco CPA does not select lots or recommend transactions.

What Is Crypto Cost Basis?

For a digital asset purchased with cash, starting basis generally includes the cash cost plus properly allocable acquisition transaction costs. Basis from an exchange, services, income inclusion, gift, inheritance, or another acquisition route follows the rules for that route, and later events can adjust basis. On a disposition, gain or loss is generally the difference between amount realized and adjusted basis.

Illustration assumptions: Both BTC lots are in the same wallet or account immediately before the sale, with any required pre-2025 basis allocation completed; BTC is held as a capital asset; the stated purchase amounts are the lots' adjusted bases; $100,000 is the amount realized; and the isolated examples assume no transaction costs, other basis adjustments, wash-sale or ordinary treatment, offsets, or complete-return items. The examples show only lot ordering, gain, and holding-period character.

Multiple purchases of the same asset at different prices create separate lots. In the illustration, 1 BTC is acquired in January 2024 at $42,000, another 1 BTC in November 2025 at $95,000, and 1 BTC is sold in December 2025 for $100,000. The valid timely identification or applicable default-order rule determines the disposed lot.

What Is FIFO and How Does It Work for Crypto?

FIFO stands for first in, first out. Under the applicable default-order rule, the earliest acquired units are assigned to a completed disposition when no timely adequate Specific Identification applies; a generic software setting or later 'election' does not replace the identification requirements.

Using the example above: under FIFO, you are selling the January 2024 lot purchased at $42,000. Your gain is $58,000 ($100,000 minus $42,000), and it qualifies as long-term because you held for over one year.

FIFO mechanics for completed dispositions

FIFO is an ordering rule that does not require a separate lot selection for each completed transaction. It matches the earliest acquired units first, so the resulting basis and holding period follow from the taxpayer's acquisition and disposition records.

Because FIFO matches earlier lots, it can produce a different basis and holding period from a valid timely specific identification. Federal rate treatment and the final return computation depend on the completed transaction and the taxpayer's full facts; this comparison does not promise a smaller bill or recommend a method.

FIFO when valid specific identification is unavailable

FIFO applies the earliest acquired units to completed dispositions when valid specific identification is unavailable. The resulting basis and holding period are mechanical consequences of the records, not a transaction recommendation.

What Is Specific Identification and How Does It Work for Crypto?

Specific Identification permits a taxpayer to designate the purchase lot used for a disposition when the timing, documentation, and broker-communication requirements are satisfied. Monaco CPA reports a timely, supportable identification documented for a completed transaction; it does not choose lots or direct a disposition.

Using the same example, assume the November 2025 lot purchased at $95,000 was timely and adequately identified before the December 2025 sale. The resulting gain is $5,000 ($100,000 minus $95,000), and it is short-term because the identified lot was held for less than one year.

Specific Identification reporting consequences

Specific identification can produce a different basis and holding period from FIFO when the taxpayer made a timely, supportable identification for a completed disposition. Monaco CPA reports documented completed transactions; it does not select lots or recommend sales.

Specific Identification can produce a different basis and holding period from FIFO, but only when its documentation and timing requirements are met. That mechanical difference is not a promised advantage or transaction recommendation.

The Documentation Requirement for Specific ID

Under IRS regulations, the specific lot must be adequately identified no later than the applicable time. Selecting a different lot after the fact is not a timely identification.

For TY2025, Notice 2025-7 (issued December 31, 2024) provides temporary relief permitting adequate identification on the taxpayer's own books and records when its requirements are met, rather than requiring communication of the identification to the broker.

This relief was originally set to expire December 31, 2025, but was extended through December 31, 2026 by IRS Notice 2026-20 (issued March 2026). The notice extends eligible book-and-record identification methods; it does not impose a broker technology deadline. Unless later guidance changes the rule, adequate identification after the relief period must satisfy the final regulation, including timely communication to the custodial broker using identifiers the broker designates as sufficiently specific.

Transition-Allocation Deadline vs. Transaction-Time Identification

Rev. Proc. 2024-28 Section 5.02(4) is a transition safe-harbor condition for allocating pre-2025 unused basis by specific unit. It requires the allocation to be completed before the earlier of the first post-2024 sale, disposition, or transfer of the same digital-asset type or the applicable 2025 return deadline described in that section.

That transition-allocation deadline is separate from the transaction-time identification rules in Treas. Reg. Section 1.1012-1(j). For an unhosted wallet, identification generally must be recorded no later than the transaction time. For broker-custodied units, the final rule generally requires timely broker communication, subject to the temporary book-and-record or standing-order relief in Notice 2025-7 as extended by Notice 2026-20. Contemporaneous records can support compliance but do not guarantee an audit or litigation result.

How Do FIFO and Specific Identification Produce Different Reporting Results?

A timely adequate Specific Identification controls when its requirements are met; otherwise the applicable regulatory default-order rule assigns the units. The reported basis and holding period follow from the completed disposition and supporting records, not from a later preference or recommendation.

Default-order mechanics: When no timely adequate Specific Identification applies, the regulatory default-order rule assigns the earliest acquired units. The resulting basis and holding period follow from the completed transaction and records; this is not a recommendation to use a method or make a disposition.

Specific-identification education: This method requires timely, supportable lot identification and complete records. Whether it is available and appropriate depends on the facts; Monaco CPA does not choose investments or recommend transactions.

The NJ consideration: New Jersey has no preferential long-term capital-gain rate. A valid basis method can change the reported gain on a completed disposition, but this article does not recommend a method or transaction. For the federal and NJ reporting comparison, see How New Jersey Taxes Crypto: Federal and NJ Reporting Differences.

What Is the Per-Wallet Basis Tracking Rule?

Starting January 1, 2025, Treas. Reg. §1.1012-1(j) requires that crypto cost basis be tracked per wallet and per account (Rev. Proc. 2024-28 supplies the one-time safe harbor for allocating pre-2025 basis). Apply the per-wallet rule to each account's acquisition, transfer, and completed-disposition records.

For post-2024 dispositions, the final regulations require basis to be tracked by wallet or account rather than through one universal pool. If BTC is held in two exchange accounts and a separate self-custody wallet, those are separate basis pools. Lot matching for a sale is performed within the specific account or wallet where the disposition occurred.

How Does Per-Wallet Tracking Affect Transferred Assets?

When the same digital asset is transferred between wallets or accounts of the same beneficial owner without a sale, exchange, or other disposition, its supported basis and acquisition date carry to the receiving account. The transferred lot becomes part of that account's basis pool but remains distinct rather than merging or averaging with other lots. A token transformation, change in beneficial ownership, or other transaction requires separate analysis.

If you bought 1 BTC on Kraken for $40,000 and transferred that same BTC to a Coinbase account under the same beneficial ownership without another disposition, the $40,000 basis is then tracked within the receiving account while remaining a distinct lot. If you also bought 1 BTC directly on Coinbase for $90,000, the account contains two distinct lots. For a completed disposition, a timely adequate Specific Identification controls when its requirements are met; otherwise the applicable default-order rule assigns the units. Digital assets used or withheld to pay transfer-service fees can create a separate disposition even when the principal same-owner transfer is not taxable.

The Safe Harbor Allocation Methods

Rev. Proc. 2024-28 provides a safe harbor with two methods for assigning pre-2025 unrealized basis to specific wallets and accounts as of January 1, 2025. Section 3.10 defines "as of January 1, 2025" as immediately after the close of the taxpayer's day on December 31, 2024.

Global Allocation: You allocate unused basis across wallets and accounts using a documented methodology. The methodology must have been documented in the books and records before January 1, 2025; it cannot be elected retroactively after that date. The actual mathematical application must be completed before the later of the first sale, disposition, or transfer of that asset type on or after January 1, 2025, or the applicable 2025 return deadline in Section 5.02(4)(b), per Section 5.02(5)(b). Until the Global Allocation is completed, Section 5.02(5)(c) permits identification of remaining units sold, disposed of, or transferred only through a standing order or instruction communicated to the broker or recorded in the taxpayer’s books and records; that order must be applied when selecting those units after the allocation is complete.

Specific Unit Allocation: You assign specific purchase lots to specific wallets and accounts. The documentation must be completed before the date and time of the first sale, disposition, or transfer of that asset type on or after January 1, 2025, or by the return due date including extensions, whichever is earlier, per Section 5.02(4)(a). Separately, Notice 2025-7 as extended by Notice 2026-20 permits identification of eligible broker-custodied units sold, disposed of, or transferred through December 31, 2026 either in the taxpayer's books and records no later than the transaction time or through a sufficiently specific standing order recorded before the transaction.

What Changes for Sales After 2025?

For sales after 2025, a broker generally must report adjusted basis only for a covered security acquired after 2025 through a qualifying acquisition in the broker-custodial account and held there until the broker effects the disposition. A broker may voluntarily report basis for a noncovered security, while optional reporting methods for qualifying stablecoin and NFT sales can omit basis.

Because "covered" is narrow, basis reporting remains nonmandatory for the following lots even after 2025:

• Assets acquired before January 1, 2026: these are noncovered regardless of where they are held
• Assets transferred in from another wallet or exchange: noncovered in the receiving broker's account under the current Form 1099-DA instructions; taxpayer records establish the carried basis and acquisition date
• Units acquired outside a qualifying broker-custodial acquisition: this may include units from DeFi, self-custody staking, airdrops, or mining, depending on how they entered the account
• Assets outside a reporting broker's qualifying custodial-acquisition chain: Form and basis coverage depends on the actual broker, U.S.-reporting status, account, acquisition, custody, transaction, exceptions, and form year; a platform, custody, or geography label alone does not establish coverage

Required basis can therefore remain absent from Form 1099-DA beyond the first year. A broker may voluntarily report noncovered basis, but when it is omitted the taxpayer supplies supported basis on Form 8949 from wallet, exchange, transfer, and acquisition records.

For a full walkthrough of how to handle blank basis on your TY2025 1099-DA, including the correct Form 8949 codes and adjustment mechanics: The 1099-DA $0 Basis Trap: What Crypto Investors and CPAs Need to Know for Tax Year 2025.

How Do I Rebuild My Crypto Cost Basis for My TY2025 Return?

If you are filing now and need to reconstruct blank basis or correct an unsupported $0 on your 1099-DA, here is the framework by acquisition type.

Centralized Exchange Purchases

For a qualifying cash acquisition through a centralized exchange, the cash purchase price plus properly allocable acquisition transaction costs determines starting basis. Other exchange acquisitions follow their applicable Section 1001, income-inclusion, gift, inheritance, or other basis route. Download the full transaction history and match each completed disposition on Form 1099-DA to the lot supported by a timely adequate identification or, absent one, the applicable default-order rule within that account under the per-wallet requirements.

Transferred-In Assets

Use the originating platform or wallet records to identify the specific transferred lot and support its carried basis and acquisition date. On the current Form 1099-DA, box 12a reports the number of disposed units that were transferred into the broker's custodial account, and box 12b reports the transfer-in date; box 12b is left blank when the units were transferred in on various dates. Reconcile those fields with the taxpayer's transfer and acquisition records.

Staking and Earn Rewards

For validation rewards within Rev. Rul. 2023-14's facts, the amount included at the applicable dominion-and-control time generally enters basis only to the extent included in gross income. Exchange earn, lending interest, and other receipts require separate Section 61, Section 451, dominion-and-control, and character analysis. Support any included amount and resulting basis with contemporaneous records.

DeFi Acquisitions

For an exchange of one digital asset for another that differs materially in kind or extent, the received asset's starting basis under the applicable exchange rule and FAQ 72 is the fair market value used in determining amount realized; later events can adjust that basis. A gas payment receives the transaction-cost treatment only when it meets FAQ 53's definition. FAQs 66 and 72 allocate qualifying exchange costs to the disposed asset rather than adding them to the received asset's basis. A qualifying cash-purchase cost enters basis under FAQ 56. A fee paid with a digital asset can create a separate fee-token disposition under FAQ 97, subject to the specific rules in FAQs 98 and 99. Actual asset character and acquisition records control, while lending, liquidity-pool, bridge, wrapping, and same-asset transactions require their separate analyses.

Airdrops and Hard Forks

For a hard-fork-followed-by-airdrop receipt within Rev. Rul. 2019-24's facts, the amount included at the applicable dominion-and-control time generally enters basis only to the extent included in gross income. Support value and inclusion under the actual facts rather than assuming zero basis from a missing market quote.

For detailed step-by-step instructions including fee handling and common errors, see The 1099-DA $0 Basis Trap: Records and Reconciliation.

How Does Cost Basis Method Affect Tax-Loss Harvesting?

Cost-basis methods affect reporting of completed transactions. Section 1091 treatment and identification requirements depend on the asset, year, and records; this is not a recommendation to sell or repurchase an asset.

Under Specific ID with adequate identification (Treas. Reg. 1.1012-1(j)), the units you identify control which basis is used; without identification, earliest-acquired ordering applies. Which lot, if any, to sell is a facts-based decision; identification is a reporting mechanic, not a recommended strategy.

The Lummis amendment to extend wash sale rules to digital assets was not included in the One Big Beautiful Bill Act signed July 4, 2025. Standalone bill S. 2207, introduced June 30, 2025, would extend Section 1091 to digital assets if enacted. On September 16, 2026 the House Ways and Means Committee ordered H.R. 10357 reported; as amended in committee, it would apply Section 1091 to traded digital assets (other than qualified U.S. dollar stablecoins) for dispositions after September 14, 2026. It is not law, and current law still applies. Section 1091 as enacted applies to stock or securities; verify the current status of S. 2207, H.R. 10357, or any successor bill on congress.gov before relying on wash-sale inapplicability for a later year. Wrapped tokens and liquid staking tokens occupy a fact-specific gray area. Discuss with your CPA before relying on wash sale inapplicability for these specific assets.

How Do I Handle the 2026 Mandatory Crypto Basis Reporting Rules?

The records and completed-transaction mechanics include:

Broker identification methods: Notice 2026-20 extends eligible book-and-record relief through December 31, 2026 but does not guarantee a broker feature or require a broker to accept any identifier a customer chooses. Absent later relief, a taxpayer seeking Specific Identification after that period must timely communicate an identification using identifiers the custodial broker designates as sufficiently specific; otherwise the regulatory default-order rule may apply.

Clean up your transfer records. Every transfer between wallets and exchanges needs documented original basis and acquisition date. Transferred-in assets remain noncovered even after mandatory reporting begins.

Reconcile your pre-2026 holdings. Any asset you held on December 31, 2025 and have not yet sold is a noncovered asset requiring self-reported basis whenever you sell it. Lock in those records now while they are accessible.

Reconcile per-wallet tracking. Treas. Reg. Section 1.1012-1(j) applies to digital-asset acquisitions, sales, dispositions, and transfers on or after January 1, 2025. If the records are not already organized by wallet or account, reconstruct the current lots from contemporaneous acquisition, transfer, and disposition records. Rev. Proc. 2024-28 is a transition safe harbor for pre-2025 unused basis and remains conditioned on its historical documentation and allocation deadlines; a generic 2026 setup does not cure a missed deadline.

Historical records: Preserve exchange records, wallet histories, transfer statements, and on-chain data for as long as they support an open lot, later disposition, or return position; future platform access is not guaranteed.

Need Help With Crypto Cost Basis?

If you are struggling to reconstruct basis across multiple wallets and exchanges, review 1099-DA reconciliation information or use the contact form to request a written scope. Availability, acceptance, and any result are not promised.

Sources: Rev. Proc. 2024-28 | Notice 2025-7 | Notice 2026-20 | IRS Digital Asset FAQs, including FAQs 53, 56, 66, 72, 81, and 97-99 | IRS Instructions for Form 1099-DA (2026) | IRS Instructions for Form 8949 (2025) | Rev. Rul. 2023-14 | Rev. Rul. 2019-24 | S. 2207, 119th Congress | H.R. 10357, 119th Congress (ordered reported September 16, 2026)

This article is for informational purposes only and does not constitute tax advice. Tax outcomes depend on your specific facts and circumstances.

Greg Monaco, CPA | New Jersey CPA license | New Jersey CPA firm registration | 1099-DA reconciliation information | Monaco CPA: monacocpa.cpa

Frequently Asked Questions About Crypto Cost Basis

Related reading: 1099-DA Basis Trap | NJ Crypto Tax Guide | Crypto Tax Services

Request a Crypto Basis Scope

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