Bitcoin FIFO Rule 2026: How the IRS Determines Which Bitcoin You Sold

You bought Bitcoin at different prices over several years.

Now you want to sell some of it.

Which Bitcoin did you actually sell for tax purposes?

That question matters because the answer determines your cost basis and therefore the size of your taxable gain or loss.

In 2026, the IRS rules allow specific identification of Bitcoin lots in certain circumstances. If you do not adequately identify the units being sold, the FIFO rule generally determines which units are treated as sold first.

The difference can be significant.

Consider a simple example.

You bought:

Bitcoin is now worth $80,000.

You sell 1 BTC.

If the 2021 Bitcoin is treated as the Bitcoin you sold, your gain is:

$80,000 − $20,000 = $60,000 gain

If you adequately identify the 2024 Bitcoin as the Bitcoin being sold, your gain is:

$80,000 − $60,000 = $20,000 gain

Same Bitcoin price. Same amount sold. Very different tax result.

Here is how the rules work.

FIFO means first in, first out.

For Bitcoin held in the custody of a broker, if you do not adequately identify which units you are selling, the IRS rules generally treat the earliest acquired units of that same digital asset as the units sold first.

So if you bought Bitcoin at different times and prices, the oldest lot generally gets used first when no adequate identification is made.

For example:

If you sell 1 BTC without adequately identifying the lot, the 2021 Bitcoin is generally treated as the Bitcoin sold.

Your taxable gain would therefore be:

$80,000 − $20,000 = $60,000

The important point is that FIFO is not necessarily the only method available.

No.

The IRS rules allow taxpayers to adequately identify the particular units being sold, disposed of, or transferred when the applicable requirements are satisfied.

The IRS gives examples of identifiers that can be used, including information such as the purchase date and time or purchase price, depending on what the broker designates as sufficiently specific.

If you make an adequate identification by the required deadline and keep records supporting it, the transaction can be matched to the particular Bitcoin units you identified.

That can make a major difference when your Bitcoin was purchased at different prices.

Consider the same two Bitcoin lots:

The 2021 lot is treated as sold.

Sale price: $80,000
Cost basis: $20,000
Capital gain: $60,000

The 2024 Bitcoin is treated as sold.

Sale price: $80,000
Cost basis: $60,000
Capital gain: $20,000

The difference is $40,000 of taxable gain.

That does not automatically mean that choosing the higher basis is always the right tax strategy. Holding periods, other transactions, losses, and your individual tax situation can all matter.

But it shows why Bitcoiners who own multiple tax lots need to understand identification rules.

The 2026 IRS rules provide a framework for identifying particular digital asset units.

For Bitcoin held with a broker, you can generally identify the units you want to sell by using identifiers that the broker designates as sufficiently specific.

The IRS gives examples such as:

The identification must be communicated to the broker no later than the date and time of the sale, disposition, or transfer, and you must maintain adequate records supporting the identification.

This means that simply deciding after the sale which Bitcoin you intended to sell is not enough.

The identification needs to be made in accordance with the applicable rules.

This is where FIFO becomes important.

For units held in a broker's custody, the regulations generally provide that if the taxpayer does not make an adequate identification, the units are treated as sold in chronological order, beginning with the earliest acquired units of that same digital asset.

In other words:

No adequate identification → FIFO generally applies.

That is why keeping accurate records matters.

If you bought Bitcoin repeatedly over several years, you should know which tax lots you own before you sell.

Imagine you accumulated Bitcoin through several purchases:

Now Bitcoin is worth $80,000 and you sell 1 BTC.

Depending on which lot is properly identified, the gain could look very different.

2021 lot:

$80,000 − $20,000 = $60,000 gain

2024 lot:

$80,000 − $60,000 = $20,000 gain

2025 lot:

$80,000 − $70,000 = $10,000 gain

If the earliest lot is used under FIFO, the $20,000 basis lot would be treated as sold.

If another lot is adequately identified under the applicable rules, the calculation can instead use that lot's basis.

This is why "I sold 1 BTC" is not enough information to determine the taxable gain.

You also need to know which 1 BTC was treated as sold.

Self custody changes the practical situation because there is no custodial broker automatically selecting and reporting lots for you.

That does not mean tax rules disappear.

You still need to determine your cost basis and holding period and maintain records supporting your tax reporting.

The IRS's broker reporting rules specifically address units held in the custody of a broker. For broker transactions, the 2026 rules provide the identification framework and FIFO fallback described above.

For a Bitcoiner managing coins across self custody wallets, exchanges, and other accounts, the practical challenge is maintaining a reliable record of acquisition dates, acquisition costs, transfers, and dispositions.

Moving Bitcoin between wallets you control is not the same thing as selling Bitcoin.

But when you eventually dispose of Bitcoin, you still need to determine the relevant basis and transaction details.

No.

Moving Bitcoin between wallets does not magically create a new cost basis.

A transfer is not the same as a sale simply because the Bitcoin moved from one address or wallet to another.

Your records should therefore preserve the original acquisition information.

For example, if you bought 1 BTC for $20,000 and later moved it from one wallet you control to another, the move does not turn the Bitcoin into a new $80,000 tax lot.

The original basis remains relevant when you later dispose of the Bitcoin.

This is where record keeping becomes especially important.

The 2026 Form 1099 DA instructions distinguish between covered and noncovered digital assets. Among other situations, digital assets acquired before 2026 or transferred into a broker's custodial account can be treated as noncovered securities for Form 1099 DA reporting purposes.

The fact that a broker may not have complete historical basis information does not necessarily mean that you have no basis.

Your own records can still matter when determining your tax liability.

The 2026 Form 1099 DA instructions also specifically address digital assets transferred into a broker's custodial account and require reporting of certain transfer information.

So if you accumulated Bitcoin elsewhere and later transfer it to a broker, keep your acquisition records.

There is an important distinction between information reporting and tax liability.

Beginning with sales effected after 2025, brokers generally use Form 1099 DA to report digital asset sales. The 2026 instructions distinguish between covered and noncovered securities and specify when acquisition date and basis information must be reported.

But the form is not itself the tax calculation.

Your actual gain or loss depends on the relevant tax rules, including the amount realized and your adjusted basis.

That means a Bitcoin sale can require you to look beyond the number appearing on a broker statement.

The lot you sell can affect more than just your cost basis.

It can also affect your holding period.

If you acquired one Bitcoin several years ago and another more recently, selling the older lot may produce a different holding period from selling the newer lot.

That can matter because the tax treatment of a capital gain can depend on how long the property was held.

So tax lot identification can affect two important questions:

Both should be considered when determining the tax consequences of a sale.

If you are accumulating Bitcoin over multiple years, keep records that allow you to reconstruct your tax lots.

At a minimum, your records should allow you to determine:

The IRS specifically requires adequate records to substantiate a taxpayer's identification of digital asset units.

For Bitcoiners using multiple exchanges and self custody, consolidating this information before a large sale can prevent a lot of problems later.

Before selling Bitcoin, ask:

1. What Bitcoin lots do I own?

Know your acquisition dates and cost basis.

2. Is the Bitcoin held with a broker?

The 2026 identification rules specifically address digital assets held in broker custody.

3. Can I adequately identify the Bitcoin I want to sell?

Check what identifiers your broker accepts and make the identification at the required time.

4. Do my records support that identification?

Keep records that establish which units were identified.

5. If I do not identify a lot, what happens?

For broker held Bitcoin, FIFO generally applies when an adequate identification is not made.

6. What is my holding period?

The particular lot can affect whether the gain is short term or long term.

7. Does my 1099 DA match my own records?

If the broker reports the transaction, compare the information with your records rather than assuming the form answers every tax question for you.

Bitcoin FIFO is not simply a rule saying that every Bitcoin sale must use your oldest Bitcoin.

The 2026 rules provide for specific identification when the applicable requirements are satisfied. If you do not adequately identify the units being sold, FIFO generally determines which units are treated as sold for Bitcoin held with a broker.

That distinction can be worth tens of thousands of dollars in a Bitcoin portfolio with different acquisition prices.

If you bought Bitcoin at $20,000 and again at $60,000, then sell when Bitcoin is $80,000, the tax result can be very different depending on which lot is treated as sold.

The lesson is simple:

Know your Bitcoin tax lots before you sell.

And if you use self custody, multiple exchanges, or several years of accumulated purchases, keep the records needed to prove where your Bitcoin came from and which units you disposed of.

This article is provided for general informational and educational purposes only and does not constitute legal, tax, financial, or other professional advice. Tax laws and regulations can change, and their application depends on your individual circumstances. The Bitcoin Act does not provide legal or tax advice through this publication. Consult a qualified attorney or tax professional regarding your specific situation before making decisions based on the information in this article.