LIFO, last in first out, is an ordering approach that treats the most recently acquired units of an asset as sold first. When part of a holding is sold, the sale is matched against the newest tax lots, and the older lots remain on the books.
LIFO is the reverse of FIFO. The tax lots of a token are sorted by acquisition date and the newest lot is consumed first. A holder who bought ETH in January, April and August and sells one unit in September under LIFO is treated as selling the August unit.
In a rising market the newest lot is usually the most expensive, so LIFO often produces the same result as HIFO. In a falling market the newest lot is the cheapest, and LIFO produces the largest gain rather than the smallest. LIFO also selects the lot with the shortest holding period, which is usually a short-term lot. LIFO is a date ordering, not a cost ordering, and its tax effect depends on which way prices moved.
LIFO for crypto lot ordering is a different thing from the LIFO inventory method under section 472. That method is an election for inventory. Crypto held as a capital asset is not inventory, and the inventory election has no bearing on which units of a capital asset are treated as sold.
Yes, as a form of specific identification, and only where the identification requirements are met. Regulations section 1.1012-1(j) permits a taxpayer to identify the specific units sold from the wallet or account that holds them, and applies FIFO within that wallet or account when no adequate identification is made. LIFO is the pattern that results when the taxpayer identifies the most recently acquired units in that wallet or account as the ones sold. It is not an election, and it is not available by default.
For units held with a broker, the identification is made to the broker no later than the sale, or through a standing order the broker applies to later sales. For units in an unhosted wallet, the identification is made in the taxpayer's own books and records no later than the sale, and the records must establish the basis and holding period of the identified units. The identification operates within the wallet or account of the sale, so the newest lot in a different wallet cannot be identified against a sale from this one.
For 2025, IRS Notice 2025-7 provided relief that let taxpayers rely on their own records to identify units held with a broker where the broker did not support per-sale identification or standing orders. That relief is for 2025. Where no valid identification exists, the sale is FIFO regardless of the ordering the taxpayer's software shows.
A holder identifies a LIFO ordering to reduce the gain on a sale and takes the newest lot, bought seven months earlier. Under FIFO the sale would have consumed a lot held three years. The gain is smaller but short-term, taxed at ordinary rates, and the long-term lot is still on the books at its low basis. The identification was valid; the holding period was never checked before it was made.
Read our Universal vs Wallet-Based Cost Tracking
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