By Team SalaryCalculate · 9/4/2025
FIFO vs LIFO: How Crypto Gains Are Calculated
When you sell crypto, tax rules require you to match each sale with a cost-basis lot. FIFO and LIFO are two common accounting methods that determine which lots are matched first. The choice can change your reported gains, timing, and tax bill.
Below we explain how each method works, where it’s allowed, and run a worked example you can replicate for your own records.
Quick differences at a glance
| Dimension | FIFO | LIFO | Implication |
|---|---|---|---|
| Which lots are sold first? | Oldest acquired first | Newest acquired first | Changes cost basis and taxable gain |
| Rising market impact | Higher gains (older, cheaper lots) | Lower gains (newer, pricier lots) | LIFO can defer tax in bull runs |
| Falling market impact | Lower gains/higher losses | Higher gains/lower losses | FIFO can realize more loss in downtrends |
| Bookkeeping | Simple chronological matching | Must track newest lots carefully | Both require accurate lot tracking |
| Consistency | Method consistency usually required | Method consistency usually required | Changing methods may need justification |
What FIFO and LIFO mean
FIFO (First In, First Out) sells the oldest coins first. Your cost basis comes from your earliest purchase lots, which are often cheaper in a bull market. That typically increases realized gains when prices trend up.
LIFO (Last In, First Out) sells the newest coins first. Your cost basis comes from your most recent lots. In a rising market those lots tend to be higher cost, which can reduce current gains and defer some tax into future years.
Worked example: one sale, two outcomes
Assume you bought 1 BTC three times in a rising market, then sold 1 BTC later in the year:
| Date | Action | Quantity | Price | Cost |
|---|---|---|---|---|
| Jan 1 | Buy | 1.0 BTC | $20,000 | $20,000 |
| Mar 1 | Buy | 1.0 BTC | $30,000 | $30,000 |
| Jul 1 | Buy | 1.0 BTC | $40,000 | $40,000 |
On Oct 1, you sell 1.0 BTC for $35,000. Here’s how the matched cost basis differs under each method:
| Method | Units matched | Cost basis matched | Proceeds | Gain/Loss |
|---|---|---|---|---|
| FIFO | 1.0 BTC (from Jan 1) | $20,000 | $35,000 | +$15,000 |
| LIFO | 1.0 BTC (from Jul 1) | $40,000 | $35,000 | −$5,000 |
Same sale, different lots matched. In this rising-price example, FIFO realizes a gain, while LIFO realizes a short-term loss that may offset other income subject to local rules.
Want to test your own lots? Try our crypto profit loss calculator to model FIFO and LIFO side by side before you transact.
Compliance and availability by jurisdiction
Many jurisdictions allow FIFO or LIFO if you apply the method consistently and maintain detailed records of dates, quantities, and costs. Some regions favor specific identification, and some have limitations on changing methods between years. Always confirm the rules that apply to you.
Deadlines, records, and documentation
Keep exportable logs from exchanges and wallets. Track every lot: date, amount, fees, and fair market value. Filing dates can vary—see crypto-tax-deadlines-uk-us to avoid penalties and interest for late or amended returns.
FAQs
Can I switch methods mid-year?
Usually no. Most tax authorities expect a consistent method for the year unless you meet specific criteria and disclose the change. Check local guidance before switching.
Does LIFO reduce taxes forever?
Not necessarily. LIFO can defer gains during accumulation or bull markets, but remaining lower-cost lots may be sold later, increasing future gains. Method choice affects timing, not total economics of buys and sells.
Is specific identification better than FIFO/LIFO?
If allowed and documented correctly, specific identification can optimize which lots you sell. For a foundations recap, see how-crypto-taxes-work-uk-us and consider software that tracks per-lot details across wallets and exchanges.
Bottom line
FIFO and LIFO are both valid ways to match lots, but they can produce very different gains for the same sale. Pick a compliant method, keep meticulous records, and model outcomes before trading—especially around tax deadlines.
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