Crypto Tax Calculation Methods: Complete IRS Strategy Guide 2026

A $47,000 difference. That’s how much choosing the wrong crypto tax calculation method cost one trader in 2026, according to data from TaxBit’s analysis of 50,000 crypto tax returns. The trader used FIFO (First-In-First-Out) by default when HIFO (Highest-In-First-Out) would have slashed their tax liability by 68%.

In the noise of market charts and price predictions, tax optimization is the signal most traders ignore — until April 15th arrives with a five-figure bill. According to Chainalysis, only 0.53% of cryptocurrency traders properly report their tax obligations, while the IRS has trained AI systems to flag crypto transactions with 94% accuracy. The gap between what traders should know and what they actually report has never been more dangerous.

The choice of tax calculation method isn’t just about compliance — it’s a strategic decision that can save or cost you thousands. This guide decodes the six IRS-approved methods, backed by real transaction data, on-chain analytics, and case studies from institutional tax advisors who manage billions in crypto assets.

Understanding Crypto Tax Calculation Methods: The Foundation

The IRS treats cryptocurrency as property, not currency. This single classification creates a taxable event every time you sell, trade, or spend crypto — even swapping Bitcoin for Ethereum triggers capital gains reporting. According to IRS Notice 2014-21 and the updated 2023 guidance, every crypto-to-crypto trade, sale, or purchase must be reported with a cost basis calculation.

Cost basis is what you paid for the asset, including fees. Proceeds are what you received when you disposed of it. The difference determines your capital gain or loss. Simple in theory, brutal in practice when you have 500 DeFi transactions across eight protocols.

The Six IRS-Approved Methods

The IRS doesn’t mandate a specific calculation method for cryptocurrency (unlike stocks, where “specific identification” requires explicit tracking). This flexibility creates opportunity — but only if you understand the implications:

1. FIFO (First-In-First-Out) — Default method; sells oldest coins first
2. LIFO (Last-In-Last-Out) — Sells newest coins first
3. HIFO (Highest-In-First-Out) — Sells highest cost basis coins first (minimizes taxes)
4. LOFO (Lowest-In-First-Out) — Sells lowest cost basis coins first (maximizes taxes, rarely used intentionally)
5. Specific Identification — Manually designates which coins to sell
6. Average Cost Basis — Uses weighted average of all holdings

According to data from CoinTracker’s 2025 tax report analyzing 250,000 returns, 62% of traders use FIFO by default (often unknowingly), 23% use HIFO, 9% use specific identification, and 6% use other methods.

FIFO: The Default Trap Most Traders Fall Into

First-In-First-Out is the accounting standard most exchanges default to — and the method most traders use without realizing they have a choice. FIFO assumes you sell the oldest cryptocurrency first, regardless of what you actually intended.

How FIFO Works: A Real Example

Let’s say you made these Bitcoin purchases:

• January 2024: 0.5 BTC at $42,000 (cost basis: $21,000)
• June 2024: 0.5 BTC at $68,000 (cost basis: $34,000)
• December 2025: 0.5 BTC at $55,000 (cost basis: $27,500)

In March 2026, you sell 0.5 BTC at $78,000 (proceeds: $39,000).

FIFO calculation:

• Sells the January 2024 BTC (oldest)
• Capital gain: $39,000 – $21,000 = $18,000 taxable gain
• At 20% long-term capital gains rate: $3,600 tax bill

The FIFO Advantage

FIFO works best for traders who:

• Hold long-term — Your oldest coins qualify for long-term capital gains rates (held >1 year)
• Dollar-cost averaged during bear markets — Oldest coins have lower cost basis in accumulation phases
• Want simplicity — Easiest to track and explain to the IRS

According to Glassnode data, Bitcoin holders who accumulated during the 2022 bear market (average purchase price $25,000) and sold in early 2025 (peak: $73,000) saved an average of $12,000 per BTC using FIFO versus HIFO — because their oldest coins had the lowest cost basis.

The FIFO Disadvantage

FIFO becomes a tax nightmare when:

• You bought low, bull market arrives — Oldest coins have lowest cost basis = maximum taxes
• Short-term trading — Selling recent purchases could qualify for short-term losses to offset other gains
• Market cycles shift — Bull market purchases become long-term holds you don’t want to sell

Real case study: A trader accumulated 10 BTC between $15,000-$25,000 in 2026, then added 5 BTC at $68,000 in early 2024. In 2026, they sold 3 BTC at $80,000. FIFO forced them to sell their cheapest BTC first, generating $165,000 in capital gains. Using HIFO would have generated only $36,000 in gains — a $25,800 tax difference at long-term capital gains rates.

HIFO: The Tax Minimization Weapon

Highest-In-First-Out is the method institutional traders use to minimize tax liability. HIFO assumes you sell the cryptocurrency with the highest cost basis first, reducing your taxable gain (or increasing your deductible loss).

How HIFO Works: Same Scenario, Different Outcome

Using our earlier example:

• January 2024: 0.5 BTC at $42,000 (cost basis: $21,000)
• June 2024: 0.5 BTC at $68,000 (cost basis: $34,000)
• December 2025: 0.5 BTC at $55,000 (cost basis: $27,500)

You sell 0.5 BTC at $78,000 in March 2026.

HIFO calculation:

• Sells the June 2024 BTC (highest cost basis: $34,000)
• Capital gain: $39,000 – $34,000 = $5,000 taxable gain
• At 20% long-term capital gains rate: $1,000 tax bill

Tax savings vs. FIFO: $2,600 on a single 0.5 BTC transaction.

When HIFO Dominates

According to data from CoinTracker’s institutional clients (managing $4.2B in crypto AUM), HIFO reduces tax liability by an average of 43% compared to FIFO in bull market conditions. The method works best when:

1. Bull markets with varied entry points

• You accumulated at different price levels
• Recent purchases have higher cost basis than older holdings
• Current prices exceed most purchase prices

2. Tax loss harvesting opportunities

• Selling coins purchased at market tops to realize losses
• Offsetting gains from other investments or crypto trades
• Preserving lower cost basis coins for future long-term appreciation

3. Short-term trading mixed with long-term holds

• Recent purchases qualify as short-term (higher tax rates anyway)
• Using HIFO to sell recent purchases generates smaller gains
• Preserves oldest coins for long-term capital gains rates

The HIFO Compliance Requirement

The IRS requires contemporaneous documentation for HIFO. According to IRS Revenue Procedure 2014-21, you must:

1. Track specific lots — Record which exact coins you’re selling at time of sale
2. Maintain transaction records — Wallet addresses, transaction IDs, timestamps, exchange confirmations
3. Use consistent methodology — Can’t cherry-pick methods for individual transactions

Most crypto tax software platforms (TaxBit, CoinTracker, Koinly, ZenLedger) handle HIFO calculations automatically if you import all transactions. Manual tracking requires detailed spreadsheets mapping each acquisition to each disposal.

Critical note: You can use different methods for different wallets or asset types (BTC vs ETH), but must use the same method for all units of the same asset in the same wallet.

LIFO: The Strategic Middle Ground

Last-In-First-Out assumes you sell the most recently acquired cryptocurrency first. While less popular than FIFO or HIFO (used by only 4% of traders according to CoinTracker data), LIFO serves specific strategic purposes.

How LIFO Works

Same purchase scenario:

• January 2024: 0.5 BTC at $42,000 (cost basis: $21,000)
• June 2024: 0.5 BTC at $68,000 (cost basis: $34,000)
• December 2025: 0.5 BTC at $55,000 (cost basis: $27,500)

You sell 0.5 BTC at $78,000 in March 2026.

LIFO calculation:

• Sells the December 2025 BTC (newest)
• Capital gain: $39,000 – $27,500 = $11,500 taxable gain
• Tax result: Between FIFO ($18,000 gain) and HIFO ($5,000 gain)

When LIFO Makes Sense

1. Accumulation phase exits

• You’re dollar-cost averaging and need to take profits
• Recent purchases have mid-range cost basis
• Want to preserve oldest coins for long-term appreciation

2. Short-term trading strategy

• Selling newest coins keeps them in short-term capital gains category
• Useful when you have offsetting short-term losses to deduct
• Maintains oldest coins for eventual long-term tax treatment

3. Inventory accounting mindset

• Common for traders with traditional finance backgrounds
• Mirrors LIFO inventory accounting in businesses
• Easier to conceptualize than HIFO for some traders

According to data from institutional tax advisors at Lukka (serving 60+ crypto hedge funds), LIFO usage increased 34% in 2026 among quantitative trading firms. The reason: automated trading strategies often sell recent purchases, making LIFO the natural accounting reflection of actual trading behavior.

Specific Identification: Maximum Control, Maximum Complexity

Specific Identification (also called “Spec ID”) lets you designate exactly which cryptocurrency units you’re selling at the time of transaction. This method offers ultimate flexibility but requires meticulous record-keeping.

How Specific Identification Works

You hold:

• Lot A: 1 BTC purchased at $30,000 (January 2024)
• Lot B: 1 BTC purchased at $60,000 (June 2024)
• Lot C: 1 BTC purchased at $45,000 (December 2025)

You sell 1 BTC at $70,000 in March 2026. With Specific ID, you choose which lot to sell:

Scenario 1: Sell Lot A

• Gain: $40,000
• Long-term capital gains qualified
• Tax bill: $8,000 (at 20%)

Scenario 2: Sell Lot B

• Gain: $10,000
• Long-term capital gains qualified
• Tax bill: $2,000 (at 20%)

Scenario 3: Sell Lot C

• Gain: $25,000
• Short-term capital gains (held <1 year)
• Tax bill: $9,250 (at 37% top bracket)

The ability to choose creates powerful tax optimization opportunities — but IRS scrutiny is highest for Specific ID.

IRS Requirements for Specific Identification

According to IRS Revenue Ruling 2020-4 (modified for digital assets), you must:

1. Document the specific lot at time of sale

• Wallet address holding the specific units
• Transaction hash of the original purchase
• Amount and date of acquisition
• Amount being sold

1. Receive confirmation from your broker/exchange

• Most centralized exchanges don’t support Specific ID
• DEX transactions require manual tracking
• Self-custody wallets need detailed records

1. Maintain permanent records

• Screenshots of wallet confirmations
• Exchange trade confirmations with lot designations
• CSV exports with transaction-level detail

When Specific ID Delivers Maximum Value

1. Tax loss harvesting campaigns

• Markets drop, you have gains to offset
• Identify specific lots at a loss and sell those
• Preserve appreciated lots for future long-term treatment

2. Optimizing short-term vs long-term gains

• You have short-term losses to offset
• Specifically sell short-term gain lots
• Preserve long-term lots for lower tax rates

3. Strategic rebalancing

• Selling specific lots to maintain target allocation
• Minimize taxes while executing portfolio strategy
• Common among institutional investors

Real case study from Coinbase Prime: An institutional client with $50M in Bitcoin holdings across 200+ separate purchases used Specific ID to sell $5M worth of BTC. By manually selecting lots purchased in January 2024 (cost basis $43,000) rather than the default FIFO lots from 2023 ($28,000 average), they reduced their 2025 tax bill by $1.7 million.

The complexity is real: according to a survey of 500 traders by CryptoTaxCalculator, only 8% who attempted Specific ID successfully maintained IRS-compliant documentation. The rest defaulted back to HIFO or FIFO during audits.

Average Cost Basis: The Simplicity Strategy

Average Cost Basis calculates the weighted average cost of all cryptocurrency units you hold, then applies that average to each sale. This method is common in traditional mutual fund accounting but less prevalent in crypto (used by approximately 6% of traders, per CoinTracker data).

How Average Cost Basis Works

You hold:

• 1 BTC purchased at $30,000
• 1 BTC purchased at $60,000
• 1 BTC purchased at $45,000

Average cost basis: ($30,000 + $60,000 + $45,000) ÷ 3 BTC = $45,000 per BTC

You sell 1 BTC at $70,000:

• Capital gain: $70,000 – $45,000 = $25,000
• Tax bill: $5,000 (at 20% long-term rate)

Every subsequent purchase adjusts the average. If you buy 1 BTC at $80,000:

• New average: ($30,000 + $60,000 + $45,000 + $80,000) ÷ 4 = $53,750 per BTC

The Average Cost Basis Advantage

1. Simplicity in record-keeping

• No need to track individual lots
• Just maintain running average with each purchase
• Easy to calculate manually if software fails

2. Reduced audit risk

• Clear, straightforward methodology
• Less room for IRS dispute
• Common accounting method in traditional finance

3. Predictable tax planning

• You always know your current cost basis
• Makes quarterly tax estimates easier
• Reduces surprises at year-end

According to data from Koinly (processing 2.5M tax reports annually), traders using Average Cost Basis report 76% fewer IRS disputes compared to Specific ID users — though they typically pay 12% more in total taxes than HIFO optimizers.

The Average Cost Basis Limitation

1. Cannot undo or change

• Once you use Average Cost Basis for an asset, you must continue using it
• IRS treats it as a “method change” requiring Form 3115 approval to switch
• Locks you into potentially suboptimal tax treatment

2. Misses optimization opportunities

• Can’t strategically harvest losses from specific lots
• Can’t target highest cost basis coins
• Less flexible than Specific ID or HIFO

3. Not supported everywhere

• Many exchanges don’t calculate this method
• Requires manual tracking or specialized software
• Some tax software doesn’t support it for crypto

Important IRS note: Average Cost basis is explicitly allowed for mutual funds per IRS Publication 564, but the IRS hasn’t issued specific guidance on its use for cryptocurrency. Tax professionals recommend written documentation if you choose this method.

Tax Impact Comparison: Real Numbers from 2026

Let’s analyze a realistic trading scenario using data from CoinTracker’s 2025 tax optimization study, which tracked 10,000 anonymous traders with similar transaction volumes:

Scenario Setup

• Total BTC traded in 2025: 5 BTC sold
• Purchase history: 20 separate acquisitions from 2023-2025
• Price range: $15,000 (2023 low) to $73,000 (2024 high)
• Sale price: $78,000 average in 2026

*Assumes 37% short-term rate, 20% long-term rate, and no state taxes

Key Insights from the Data

1. HIFO saves approximately 44% versus FIFO in bull market scenarios with varied entry points
2. Specific ID optimized (manually selecting lowest-tax lots) performs slightly better than HIFO but requires significantly more work
3. LIFO and Average Cost fall in the middle — simpler than Specific ID, better than FIFO, but not optimal
4. Tax savings compound over time — the $22,200 difference between FIFO and HIFO could be reinvested, generating additional returns

According to Glassnode’s research on institutional crypto tax strategies, professional traders using HIFO or Specific ID save an average of $73,000 per year compared to retail traders defaulting to FIFO. Over a decade, that difference exceeds $1 million when compounded at 8% annual returns.

Choosing Your Method: A Strategic Framework

The optimal tax calculation method depends on four key factors:

1. Your Trading Patterns

High-frequency trader (100+ transactions/year):

• Use HIFO with automated software
• Manual Specific ID is impractical
• Average Cost creates mid-range results with less hassle

Dollar-cost averager (monthly/weekly purchases):

• FIFO works if you’re accumulating in bear markets
• HIFO is better if you’re averaging through bull markets
• Average Cost provides predictability

Strategic rebalancer (quarterly adjustments):

• Specific ID offers maximum control
• HIFO provides good automation
• Avoid methods you can’t change (Average Cost)

2. Market Cycle Position

Bull market (like 2024-2025):

• HIFO minimizes taxes on appreciated holdings
• Specific ID lets you harvest tax losses from volatile altcoins
• FIFO maximizes taxes (avoid unless you have strategic reasons)

Bear market (like 2022):

• FIFO can generate larger losses to carry forward
• Specific ID lets you target maximum loss lots
• Tax loss harvesting becomes critical

Sideways market:

• Method choice matters less (smaller price differentials)
• Focus on simplicity and consistent record-keeping
• Average Cost provides predictability

3. Tax Situation and Goals

High income bracket (37% federal rate):

• Every dollar of tax savings matters
• HIFO or optimized Specific ID pays for itself in saved taxes
• Consider professional tax advisor ($2,000-$5,000 fee easily recouped)

Lower bracket (<22% federal rate):

• Tax optimization still valuable but lower absolute savings
• Consider simplicity vs. optimization trade-off
• FIFO or LIFO may be “good enough”

Tax loss harvesting strategy:

• Specific ID essential to target specific loss lots
• Can’t execute sophisticated strategies with FIFO/LIFO
• Worth the complexity for strategic investors

Future capital gains planning:

• HIFO preserves low cost basis coins for future appreciation
• Creates favorable tax situation in later years
• Compounds benefits over multi-year holding periods

4. Record-Keeping Capability

Strong systems (using professional tax software):

• HIFO and Specific ID become practical
• Automated lot tracking eliminates manual work
• Worth $200-$500/year software cost

Manual tracking:

• FIFO or Average Cost reduce complexity
• Specific ID requires disciplined spreadsheet management
• High audit risk if records are incomplete

Minimal tracking (occasional trades):

• FIFO by default is acceptable
• Consider HIFO if software is affordable
• Don’t attempt Specific ID manually with limited documentation

For our complete guide to leading crypto tax software platforms (including which ones support each calculation method), see our Best Crypto Tax Software 2026 comparison.

Implementation: Setting Up Your Tax Calculation Method

Step 1: Choose Your Method Before Year-End

The IRS requires consistency within a tax year. According to tax attorney guidance from Moish E. Peltz (specializing in crypto taxation), you can change methods between years but not mid-year for the same asset.

Key deadline: December 31, 2026

• Your method choice applies to all 2026 transactions
• Can’t retroactively change 2026 after filing
• Can choose a different method for 2027

Best practice: Choose your method by Q1 2026, document it in writing, and use consistently throughout the year.

Step 2: Implement with Software or Manual Tracking

Automated approach (recommended for >50 transactions/year):

Top software by method support (based on 2026 feature testing):

All platforms integrate with 500+ exchanges and wallets, automatically import transactions, and generate IRS Form 8949 with your chosen method.

Manual approach (only viable for <20 transactions/year):

1. Create a detailed spreadsheet with columns:

• Date purchased
• Amount purchased
• Price per coin
• Total cost basis (including fees)
• Date sold
• Amount sold
• Sale price
• Proceeds (minus fees)
• Capital gain/loss
• Holding period (short/long term)

1. Apply your method consistently:

• FIFO: Sort by purchase date, sell oldest first
• LIFO: Sort by purchase date, sell newest first
• HIFO: Sort by cost basis, sell highest first
• Specific ID: Manually designate which lot

1. Maintain source documentation:

• Exchange trade confirmations
• Wallet transaction hashes
• Screenshots of relevant transactions
• CSV exports from exchanges

According to IRS Publication 544, you must keep tax records for at least 3 years after filing, but crypto tax professionals recommend 7+ years given the IRS’s increased focus on cryptocurrency compliance.

Step 3: Document Your Method Choice

The IRS doesn’t require formal notification of your chosen method, but documentation protects you in an audit. Recommended practices:

1. Written statement in your tax files:

“For the 2026 tax year, I am using the HIFO (Highest-In-First-Out) method for calculating cost basis on all Bitcoin sales. This method will be applied consistently to all BTC transactions throughout 2026.”

Signed: [Your Name] Date: January 15, 2026

2. Attach supporting documentation to Form 8949:

• IRS Form 8949 (Sales and Dispositions of Capital Assets)
• Include a brief note: “Cost basis calculated using HIFO method”
• Attach detailed transaction report from tax software

3. Keep software settings documentation:

• Screenshot of your chosen method in tax software
• Export transaction report showing methodology
• Save annually in case software changes or you switch platforms

Step 4: Monitor and Optimize Throughout the Year

Tax calculation isn’t set-and-forget. Strategic traders monitor quarterly:

Q1 Review (March 31):

• Year-to-date gains/losses by method
• Projected tax liability at current trajectory
• Adjustment opportunities for Q2-Q4

Q2 Review (June 30):

• Mid-year tax position
• Tax loss harvesting opportunities
• Whether current method is optimal

Q3 Review (September 30):

• Final quarter planning
• Estimated tax payment calculations
• Strategic trades to optimize year-end position

Q4 Review (November 30):

• Last chance for tax loss harvesting (wash sale rules don’t apply to crypto)
• Final method verification
• Year-end documentation preparation

According to data from CPA firms specializing in crypto (surveyed by CoinDesk in 2026), traders who conduct quarterly reviews save an average of 23% more on taxes than those who only review annually — catching optimization opportunities in real-time.

DeFi Complications: How Methods Apply to Complex Transactions

Decentralized finance introduces calculation complexities that challenge every method. According to DeFiLlama data, total value locked in DeFi protocols reached $143B in early 2026, with the average DeFi user executing 47 taxable transactions per month across yield farming, liquidity pools, and protocol interactions.

Liquidity Pool Complications

The challenge: When you deposit ETH + USDC into a Uniswap pool, you receive LP tokens. When you withdraw, you may receive different amounts of ETH and USDC than you deposited (due to impermanent loss). How do you calculate cost basis?

IRS treatment (based on 2023 guidance):

1. Deposit = taxable event — Exchanging ETH for LP tokens triggers capital gains
2. Withdrawal = taxable event — Exchanging LP tokens back triggers gains/losses
3. Cost basis calculation depends on your method

HIFO example:

• You deposited 10 ETH purchased at various prices ($1,800-$4,200)
• Using HIFO, you designate the highest cost ETH ($4,200) for the deposit
• Minimizes gain on the initial deposit event
• Preserves lowest cost ETH for future appreciation

Challenge: Most DeFi platforms don’t track which specific tokens you deposit. You must maintain off-chain records mapping specific lots to specific LP positions.

Solution: According to DeFi tax specialists at TokenTax, use transaction hashes to link specific wallet addresses to specific purchases, then document which lots funded which DeFi positions.

For more on navigating DeFi taxation, see our DeFi Tax Reporting Guide.

Yield Farming and Reward Tokens

The challenge: You stake AAVE tokens and receive reward tokens daily. Each reward is taxable as ordinary income at fair market value when received. When you sell rewards, you owe capital gains.

Method application:

• Ordinary income (when received): Not affected by your chosen method
• Capital gains (when sold): Apply FIFO/LIFO/HIFO/Specific ID to your reward token sales

HIFO strategy for reward tokens:

1. Daily rewards create hundreds of tiny lots with different cost bases (depending on token price when received)
2. HIFO automatically sells highest cost basis reward tokens first
3. Minimizes capital gains when harvesting yield farming profits

Real case study from CryptoTaxCalculator: A yield farmer earned 15,000 reward tokens over 365 days, with values ranging from $2-$8 per token at time of receipt. When selling 5,000 tokens at $6 each, FIFO generated $17,000 in capital gains (selling oldest tokens received at $2). HIFO generated $0 in capital gains (selling newest tokens received at $6+, some at a loss).

NFT Lot Tracking

Non-fungible tokens create unique challenges because each NFT is technically a separate asset. However, if you hold multiple NFTs from the same collection, some tax advisors argue you can apply cost basis methods across the collection.

Example: You own 5 Bored Apes purchased at different prices:

• Ape #1: $100,000
• Ape #2: $200,000
• Ape #3: $150,000
• Ape #4: $80,000
• Ape #5: $120,000

You sell “a Bored Ape” for $180,000. Which one?

Conservative approach: Each NFT is a separate asset with its own cost basis. You must specifically identify which #Ape you’re selling (Specific ID is the only option).

Aggressive approach: Treat the collection as fungible, apply HIFO to sell Ape #2 (highest cost basis, smallest gain).

IRS position: Unclear. The IRS has not issued guidance on NFT lot tracking. Tax attorneys recommend the conservative approach to minimize audit risk.

Advanced Strategies: Combining Methods for Maximum Optimization

Sophisticated traders don’t use just one method — they use different methods for different assets and wallets to optimize their overall tax position. The IRS allows this, with one critical rule: consistency within each asset.

Strategy 1: HIFO for Volatile Altcoins, FIFO for Stable BTC Holdings

Rationale:

• Bitcoin (long-term hold): FIFO sells oldest coins, all qualify for long-term capital gains, predictable tax treatment
• Altcoins (trading positions): HIFO minimizes taxes on volatile price swings, preserves low cost basis positions

Real implementation:

• Bitcoin wallet: FIFO method
• Ethereum wallet: HIFO method
• Altcoin trading wallet: HIFO method
• DeFi yield wallet: Specific ID (to target specific yield positions)

According to institutional trading data from Genesis Trading (before their 2023 bankruptcy), hedge funds using method segmentation across asset types reduced overall tax liability by 31% compared to single-method firms.

Strategy 2: Tax Loss Harvesting with Specific ID + HIFO Backup

Approach:

1. Use HIFO as default for all crypto sales (minimizes gains automatically)
2. When markets drop, switch to Specific ID for targeted assets
3. Manually sell specific lots at a loss to offset other gains
4. Return to HIFO for remaining transactions

Example from Q4 2025:

• Markets dropped 35% in November-December 2025
• Trader had $50,000 in realized gains from Q1-Q3
• Used Specific ID to sell altcoin lots purchased at peak (generating $50,000 in losses)
• Offset entire year’s gains, paid $0 in crypto taxes
• Used HIFO for all other sales

**Critical IRS rule