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Dear Brass Tax Presentations,
I understand cryptocurrency gains/losses can be reported using FIFO or specific identification. Then, LIFO or HIFO could be used as forms of specific identification. If a taxpayer wants to use one of these methods, do they have to identify the highest-priced lots (with HIFO, for example) with each transaction as outlined in Publication 550 for Mutual Fund trades? Or can they specify up front to the company holding their crypto positions to always sell the highest-priced lots?
Thanks.
From Brass Tax Presentations
The specific identification of digital assets depends on whether the assets are held by a broker or held in an unhosted (aka, self-custody or noncustodial) wallet. It sounds like they are held with a broker, since you mentioned a holding company, and if that is the case then they can make a standing order to sell using a certain method.
You’ll want to review IRS Reg § 1.1012-1(j). It states that, specific to assets held by a broker:
“A standing order or instruction for the specific identification of digital assets is treated as an adequate identification made at the time of sale, disposition, or transfer.”