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Crypto Law/Level VII · Loopholes worth understanding/7.1 Legal planning/Lesson 7

Specific identification: choosing which coins you sold

How choosing which lot you sold changes the gain, what the 2025 regulations require for that choice to count, and where platform defaults make the choice for you.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Specifically identify the highest-cost lot instead of default first-in-first-out, free in your own records, no later than the date and time of sale under Treas. Reg. §1.1012-1(j)(2); this can shrink a gain or turn it into a loss.
  2. Between lots with similar gains, sell those held over one year so the gain is long-term at 0%, 15% or 20%; an identification written after year-end does not count, and without a timely one first-in-first-out applies wallet by wallet.
  3. On exchanges, set a standing order for specific identification before selling: under §1.1012-1(j)(3) a broker’s only offered method is treated as your standing order, so check each account’s default lot setting.
  4. Keep your own basis records for coins bought before 2026 or transferred in from self-custody, because Form 1099-DA reports broker basis only for units acquired in the custodial account on or after 1 January 2026.
  5. Use lot choice beyond sales: donate long-term high-gain lots, gift low-basis lots to low-bracket relatives and sell high-basis lots yourself. UK holders cannot pick lots; HMRC pools each token type in a section 104 pool.

MaterialsTreas. Reg. §1.1012-1(j) on ecfr.gov, the wallet-by-wallet identification rules for digital assetsYour exchange’s lot or cost-basis settings pageA lot list for one coin, by wallet or account, with dates and costs (lesson 2.3.1)

Wonder

  1. If I sell one coin out of three bought at different prices, which one did I sell?
  2. Can I decide which lot I sold when I file my return?
  3. What happens if my exchange only offers one method?

Explore

  1. Lesson 2.3.1 set out the US rule: units are treated as sold first in, first out (FIFO) unless you specifically identify them, and from 2025 the choice works wallet by wallet or account by account. This lesson shows why the choice is a planning tool. Take a hypothetical holder with three lots of one coin in one account: one bought in March 2023 for $25,000, one in December 2024 for $95,000 and one in March 2026 for $70,000. Selling one unit for $80,000 in October 2026 produces three different answers depending on which lot is treated as sold.
  2. FIFO picks the 2023 lot: a $55,000 long-term gain. Naming the December 2024 lot gives a $15,000 long-term loss. Naming the March 2026 lot gives a $10,000 short-term gain, taxed at ordinary rates (lesson 7.1.1). ‘Highest in, first out’ (HIFO), which software often offers, is not a separate legal method; it is specific identification applied by picking the highest-cost lot each time. The choice moves tax between years rather than removing it: lots with a high basis used now leave low-basis lots, and their larger gains, for later. The same choice decides which lots are donated or gifted (lessons 7.1.3 and 7.1.4).
  3. For coins you hold yourself, Treas. Reg. §1.1012-1(j)(2) says a specific identification is made only if, no later than the date and time of the sale, disposition or transfer, you identify on your own books and records the particular units, by an identifier such as purchase date and time or purchase price. You must also keep records showing that the unit came out of that wallet. An identification written into a spreadsheet after the year ends, once you know which answer saves tax, does not qualify, and without a timely identification the default ordering rule applies.
  4. For coins held by a broker, §1.1012-1(j)(3) requires you to tell the broker which units to sell, no later than the date and time of the sale, using an identifier the broker accepts. A standing order counts as an identification made at the time of sale, and if a broker offers only one method of identification, that method is treated as your standing order. A platform’s default setting can therefore be your legal choice whether or not you looked at it. If you make no identification, units in that account are treated as sold from the earliest acquired, and the regulation’s own example applies this to units transferred in without purchase information.
  5. Broker reporting raises the stakes. Under §1.6045-1, digital assets acquired in a custodial account on or after 1 January 2026 are covered securities, for which brokers report basis on Form 1099-DA; units bought before 2026, or transferred in from your own wallet rather than bought in the account, are not covered, and their basis comes from your own records (lesson 2.3.5). Notice 2025-7 let holders record identifications in their own books for 2025 broker sales; check whether later relief exists before relying on it. Average-cost basis under §1.1012-1(e) is limited mainly to shares of regulated investment companies and is not a general option for coins.
  6. Other systems remove the choice. In the UK, HMRC’s Cryptoassets Manual pools fungible tokens of each type in a ‘section 104 pool’ with an averaged allowable cost, after first matching same-day acquisitions and acquisitions within the following 30 days; there is no picking lots. A practical check: open the cost-basis or lot setting of each exchange account you use and write down which method it applies, and for each self-custody wallet, how and when you record which lot leaves. This lesson explains the rules; it does not recommend a lot method or any sale, which a qualified tax adviser can review against your facts.

Key facts

  • Without specific identification, US rules treat digital asset units in a wallet or account as disposed of first in, first out.
  • Treas. Reg. §1.1012-1(j)(2) requires identification of self-custodied units on the taxpayer’s books and records no later than the date and time of the sale, disposition or transfer.
  • Under §1.1012-1(j)(3), a standing order to a broker counts as an adequate identification, and a broker’s only available identification method is treated as a standing order.
  • Under §1.6045-1, digital assets acquired in a custodial broker account on or after 1 January 2026 are covered securities for basis reporting.
  • Notice 2025-7 allowed taxpayers to record identifications of broker-held units in their own books and records for sales during 2025.
  • HMRC pools fungible cryptoassets of each type in a section 104 pool after applying same-day and 30-day matching rules, so UK holders do not pick lots.

Exercise nine, six, three, one

9CollectList up to 9 lots of one coin you hold or have studied, with wallet or account, acquisition date and cost including fees.
6ClusterSort them into 6 categories: long-term high-basis lots, long-term low-basis lots, short-term high-basis lots, short-term low-basis lots, lots transferred in without broker cost data, and lots with incomplete records.
3DistillReduce the 6 categories to 3 groups: lots whose sale would produce a loss, lots whose sale would produce a long-term gain, and lots whose sale would produce a short-term gain or an uncertain result.
1CrystallizeWrite 1 sentence explaining, in your own words, why an identification made after a sale does not count as specific identification.

Fact check

Dates, figures and claims checked against the published sources listed below.

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