Specific identification is the practice of designating which particular units of an asset are sold, rather than letting a default ordering rule decide. The seller points to specific tax lots, with their acquisition dates and costs, and those lots are the ones used to compute the result of the sale.
Every acquisition of a token creates a tax lot with a date, a quantity and a cost. Specific identification is the act of naming which of those lots a sale comes from. The choice fixes the cost basis used against the proceeds and the holding period that decides whether the result is short-term or long-term.
The identification can be made lot by lot at the time of each sale, or by a rule set in advance that is applied to every sale, such as highest cost first. HIFO and LIFO are examples of such rules, and neither has any standing on its own; each is a way of carrying out specific identification.
What makes an identification real is the record behind it. The record has to exist no later than the sale, point to units that were actually in the wallet or account the sale came from, and be supported by the acquisition data for those units. A choice made after the fact, when the results of each option are already known, is not an identification.
Regulations section 1.1012-1(j) governs the identification of digital asset units acquired or disposed of on or after January 1, 2025. Units are identified within the wallet or account that holds them. A taxpayer may specifically identify the units sold by making an adequate identification. Where none is made, FIFO within that wallet or account applies.
For units held with a broker, the identification is made to the broker no later than the sale, either as an instruction for that sale or through a standing order the broker applies. For units in an unhosted wallet, the identification is made in the taxpayer's own books and records no later than the sale. In both cases the records must be sufficient to establish the basis and holding period of the units identified. An identification that points to units held in a different wallet or account from the one the sale came from is not effective for that sale.
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. The broker's Form 1099-DA reflects whatever identification the broker actually received, so a taxpayer whose identification lives only in their own records should expect the return and the form to differ and should keep the record that explains why.
A taxpayer sells 2 BTC from an exchange account and identifies, in their own records, the two units bought in 2020 at a low price. Those units were moved to a hardware wallet in 2022 and have never been in the exchange account. The identification fails because it names units the account did not hold, FIFO applies to the sale, and the 2020 lots remain in the hardware wallet to be dealt with when that wallet sells.
Read our Universal vs Wallet-Based Cost Tracking
CountDeFi provides done-for-you crypto tax accounting, including contemporaneous lot identification records, standing orders with brokers and reconciliation of identified lots against wallet holdings. See pricing.
