Crypto Cost Basis in 2026

Key Takeaways

FIFO (first in, first out) is the default crypto cost basis method if you have not made a specific election. The oldest lot of each asset is treated as the first sold.
Specific Identification gives you the flexibility to choose which lot is sold, but requires contemporaneous documentation. For TY2025, Notice 2025-7 allows lot identification on your own books and records without broker system confirmation. This relief expires December 31, 2025.
Per-wallet, per-account basis tracking is now mandatory under Rev. Proc. 2024-28, effective January 1, 2025. You can no longer aggregate basis across all wallets and exchanges as one pool.
Mandatory broker basis reporting begins for covered digital assets acquired on or after January 1, 2026. But transferred-in assets and pre-2026 acquisitions remain noncovered. Blank basis will persist on 1099-DAs for years.
Your wallet and exchange history from prior years is essential. Every lot you still hold as of December 31, 2025 is a noncovered asset that requires self-reported basis whenever you sell it.

For Tax Year 2025, most brokers did not report your crypto cost basis on Form 1099-DA. Basis reporting is entirely voluntary this year. That changes on January 1, 2026, when mandatory basis reporting begins for covered digital assets. But the rules governing how basis is calculated, which lots are sold, and how basis is tracked across wallets are already in effect. If you are filing your 2025 return right now, the method you used (or should have used) to assign cost to each sale determines how much tax you owe.

This article covers the two primary cost basis methods, the per-wallet tracking requirement, and what you need to do now to prepare for the mandatory reporting era that begins this year.

What Is Crypto Cost Basis?

Cost basis is the amount you originally paid for a digital asset, including transaction fees paid at the time of acquisition. When you sell or otherwise dispose of a crypto asset, your taxable gain or loss equals the difference between your proceeds (what you received) and your basis (what you paid). If your proceeds exceed your basis, you have a gain. If your basis exceeds your proceeds, you have a loss.

The complexity in crypto arises because most investors buy the same asset multiple times at different prices. If you bought 1 BTC in January 2024 at $42,000 and another 1 BTC in November 2025 at $95,000, and then sold 1 BTC in December 2025 for $100,000. Which purchase lot are you selling? The answer depends on your cost basis method.

What Is FIFO and How Does It Work for Crypto?

FIFO stands for first in, first out. Under FIFO, the oldest lot of a particular digital asset is treated as the first one sold. FIFO is the default cost basis method for cryptocurrency if you have not made a specific election.

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.

When FIFO Works Well

FIFO is simple, consistent, and does not require active lot selection for each transaction. For investors who accumulated crypto over a long period and are now selling, FIFO will typically match older (lower cost) lots first. The trade-off is that in a rising market, FIFO produces the largest reported gains because your cheapest lots sell first.

However, because FIFO matches older lots, it also produces the longest holding periods. At the federal level, this can be advantageous because long-term capital gains rates (0%, 15%, or 20%) are lower than short-term rates (up to 37%). The question is whether the lower rate on a larger gain produces a smaller tax bill than a higher rate on a smaller gain under Specific ID, and that depends on your specific bracket and situation.

When FIFO Works Against You

In a year of active trading with many purchase lots at various prices, FIFO may force you to sell your cheapest lots first even when selling higher-cost recent purchases would produce a smaller gain or a loss. You have no flexibility to optimize lot selection under FIFO. The rule is mechanical and automatic.

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

Specific Identification allows you to designate exactly which purchase lot is being sold in each transaction. Instead of mechanically selling the oldest lot, you choose which lot to dispose of based on your tax planning objectives.

Using the same example: under Specific ID, you could designate the November 2025 lot purchased at $95,000. Your gain would be $5,000 ($100,000 minus $95,000), and it would be short-term because you held for less than one year.

When Specific ID Produces Better Tax Outcomes

Specific ID is most valuable when you have multiple lots at significantly different costs and want to control which lots are sold. Common strategies include selling high-cost lots to minimize gains, selling long-held lots to qualify for long-term treatment, or selling lots at a loss to harvest tax deductions.

For active traders and investors with complex portfolios, Specific ID is a powerful tool, but it comes with documentation requirements that FIFO does not.

The Documentation Requirement for Specific ID

Under IRS regulations, you must identify the specific lot being sold before or at the time of the sale. Retroactive selection (picking the most favorable lot after the fact) is not permitted.

For TY2025, Notice 2025-7 (issued December 31, 2024) provides important temporary relief: taxpayers may make adequate identification of specific lots on their own books and records rather than needing to communicate specific lot selections to the broker, because most brokers did not have the technology to accept specific identification instructions by January 1, 2025.

This relief expires December 31, 2025. Starting January 1, 2026, brokers must be equipped to handle specific identification, and lot selections will need to be communicated through the broker's system.

The Timing Requirement for Specific ID

Section 5.02(4)(a) of Rev. Proc. 2024-28 explicitly requires that specific unit allocation documentation 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.

This is a regulatory requirement, not a conservative interpretation. If you traded Bitcoin at 10:00 AM on January 10, 2025, your Bitcoin allocation had to be locked in before that exact moment. Locking in your allocation at 5:00 PM the same day is a position you may need to defend. Contemporaneous pre-trade documentation is the only approach that eliminates the retroactive cherry-picking argument entirely.

FIFO vs. Specific ID: Which Is Better for Crypto?

There is no universally better method. The answer depends on your portfolio, your trading activity, and your tax situation.

Choose FIFO if: You have a small number of lots, you are not an active trader, you prefer simplicity, or your oldest lots are long-term and the preferential federal rate outweighs the larger gain amount.

Choose Specific ID if: You have many lots at different costs, you want to actively manage your tax liability, you are tax-loss harvesting, or you have high-cost recent purchases you want to match against current sales. Be prepared for the documentation requirements.

The NJ consideration: In New Jersey, there is no long-term capital gains rate preference. All crypto gains are taxed as ordinary income at NJ's graduated rates (up to 10.75%). This means the FIFO advantage of long-term holding period treatment has no NJ benefit. For NJ investors, the primary optimization axis is the size of the gain, which often favors Specific ID when high-cost lots are available. For the full NJ analysis: How New Jersey Taxes Your Crypto: A State-by-State Gap That Catches NJ Investors Off Guard.

What Is the Per-Wallet Basis Tracking Rule?

Starting January 1, 2025, Rev. Proc. 2024-28 requires that crypto cost basis be tracked per wallet and per account. This is the single biggest structural change to crypto tax accounting in years, and many investors are unaware of it.

Before 2025, it was common practice for investors to aggregate basis across all wallets and exchanges as one pool. That is no longer permitted. If you held BTC on Coinbase, BTC on Kraken, and BTC on a Ledger hardware wallet, those are three separate basis pools. The lot matching for each sale must be done within the specific account or wallet where the sale occurred.

How Does Per-Wallet Tracking Affect Transferred Assets?

When you transfer crypto from one wallet to another, the original basis and acquisition date travel with the asset to the receiving account. The transferred lot becomes part of the receiving account's basis pool. But it remains a distinct lot. It does not merge with or average into other lots already in that account.

If you bought 1 BTC on Kraken for $40,000 and transferred it to Coinbase, the $40,000 basis is now tracked within the Coinbase basis pool. If you also bought 1 BTC directly on Coinbase for $90,000, you have two separate lots in the Coinbase account. Under FIFO within the Coinbase account, the transferred Kraken lot would sell first (if it was acquired earlier). Under Specific ID, you could choose either lot.

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. Critical requirement: the methodology must have been documented in your books and records before January 1, 2025. If you did not document your methodology before that date, you cannot elect Global Allocation retroactively. The actual mathematical application must be completed by the later of the date and time of the first 2025 transaction in that asset type or the return due date including extensions, per Section 5.02(5)(b).

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). Notice 2025-7 permits lot identification on your own records for 2025 without broker confirmation.

What Changes With Mandatory Basis Reporting on January 1, 2026?

Starting with assets acquired on or after January 1, 2026, brokers must report cost basis on Form 1099-DA. This means that for TY2026 (forms issued in early 2027), covered assets will have basis populated on the form.

However, "covered" is a narrow category. Here is what will still have no broker-reported basis after January 1, 2026:

Assets acquired before January 1, 2026: these are noncovered regardless of where they are held
Assets transferred in from another wallet or exchange: noncovered on the receiving platform because the broker does not have the original purchase data
Assets acquired through DeFi, staking, airdrops, or mining: not broker-effected acquisitions
Assets on platforms that are not reporting brokers: decentralized exchanges, non-custodial wallets, and platforms outside the U.S. reporting system

This means blank basis on Form 1099-DA will persist well beyond the first year. Any time you sell an asset acquired before 2026 or transferred from outside the reporting ecosystem, you will still need to supply your own basis. Your wallet history and exchange records from prior years remain essential for years to come.

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 to Rebuild Cost Basis for Your TY2025 Return

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

Centralized Exchange Purchases

Download your full transaction history CSV from every exchange. Your purchase price plus buy-side transaction fees equals your basis for each lot. Match each sale on your 1099-DA to the corresponding purchase lot using your elected method (FIFO or Specific ID) within each account separately under the per-wallet rule.

Transferred-In Assets

Go back to the originating platform or wallet. Find the original purchase record for the specific lot that was transferred. Carry that basis and acquisition date to the receiving platform. Boxes 12a and 12b on your 1099-DA flag transferred-in assets. Treat these as high priority for basis reconstruction.

Staking and Earn Rewards

Your basis equals the fair market value of the tokens at the time of receipt. This is also the amount that should have been reported as ordinary income under Rev. Rul. 2023-14. If you did not track fair market values at the time of each reward, reconstruct them using historical price data.

DeFi Acquisitions

If you acquired a token through a DeFi swap, your basis is the fair market value of the token received at the time of the swap. Gas fees paid on the buy side add to basis. Track from on-chain records.

Airdrops and Hard Forks

Basis equals the fair market value at the time you gained dominion and control under Rev. Rul. 2019-24. If the token had no market value at receipt, basis may be $0.

For detailed step-by-step instructions including fee handling and common errors, see 1099-DA Shows the Wrong Number. Now What? How to Fix Cost Basis Errors on Your 2025 Crypto Tax Return.

How Does Cost Basis Method Affect Tax-Loss Harvesting?

Understanding your cost basis method is critical for tax-loss harvesting strategy. For TY2025, standard cryptocurrency (Bitcoin, Ethereum, and most digital assets) is still classified as property under IRS guidance, not securities. IRC Section 1091 wash sale rules do not apply to property. You can sell at a loss and immediately repurchase the same asset without triggering the 30-day wash sale deferral.

Under Specific ID, you can strategically select your highest-cost lot for a sale at a loss while retaining your lower-cost lots. Under FIFO, the oldest lot is always sold first, giving you less control over which lots generate losses.

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 passed. It has not passed for TY2025. 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 to Prepare for 2026 Mandatory Basis Reporting

Here is what you should do now to be ready:

Confirm your cost basis method with each broker. Starting in 2026, brokers must apply your elected method when calculating reported basis. If you want Specific ID, you need to communicate lot selections through the broker's system. The Notice 2025-7 self-reporting relief expires December 31, 2025.

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 still hold as of December 31, 2025 is a noncovered asset requiring self-reported basis whenever you sell it. Lock in those records now while they are accessible.

Set up per-wallet tracking. If you have not already implemented Rev. Proc. 2024-28 per-wallet and per-account tracking, do it before your first 2026 transaction.

Keep all historical records indefinitely. Your 2020 Coinbase CSV may be the only proof of basis for a lot you sell in 2028. Exchange records, wallet histories, and on-chain data are not guaranteed to be available forever.

Frequently Asked Questions About Crypto Cost Basis

What is the default cost basis method for cryptocurrency?

FIFO (first in, first out) is the default if you have not made a specific election. Under FIFO, the oldest lot of each asset is treated as the first one sold.

Can I switch from FIFO to Specific Identification?

You can elect Specific ID prospectively, but you cannot retroactively change the method for transactions that have already been reported. The election must be in place and documented before the transaction occurs.

Do I have to track cost basis separately for each wallet?

Yes. Under Rev. Proc. 2024-28, effective January 1, 2025, basis must be tracked per wallet and per account. You can no longer aggregate basis across all platforms as one pool.

Will my broker report cost basis on the 1099-DA starting in 2026?

Brokers must report basis for covered digital assets acquired on or after January 1, 2026. Pre-2026 acquisitions, transferred-in assets, and non-broker-effected acquisitions (DeFi, staking, airdrops) remain noncovered and will still have blank basis.

What if I didn't document my basis allocation before January 1, 2025?

If you did not document a Global Allocation methodology before January 1, 2025, you cannot elect that method retroactively. You may still use Specific Unit Allocation, subject to the timing and documentation requirements in Rev. Proc. 2024-28 Section 5.02(4)(a) and the Notice 2025-7 temporary relief.

How do I determine basis for crypto I received as staking rewards?

Basis equals the fair market value of the tokens at the time of receipt, which is also the amount reportable as ordinary income under Rev. Rul. 2023-14.

Need Help With Crypto Cost Basis?

If you are struggling to reconstruct basis across multiple wallets and exchanges, or need to establish the right cost basis method before mandatory reporting takes effect, visit monacocryptotax.com or reach out via DM. I work with crypto investors and traders nationwide, and I see the basis reconstruction problem in virtually every client file this season.

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/MBA | NJ CPA License #20CC04711400 | Firm License #20CB00789800 | Crypto Tax: [monacocryptotax.com](https://monacocryptotax.com) | Full-Service CPA: [monacocpa.cpa](https://monacocpa.cpa)

Crypto Cost Basis in 2026: FIFO, Specific ID, and Why Your Wallet History Matters More Than Ever