Crypto Cost Basis Tracking: 2025 Guide to FIFO & LIFO

The IRS just changed the game for crypto taxes. Starting in 2025, you can't pool all your crypto together anymore.  You need to track the cost basis separately for each wallet and exchange. Miss this, and you're looking at penalties, failed audits, or overpaying by thousands.

Most traders are still using spreadsheets that break the moment you add a second wallet or touch DeFi. The new per-wallet cost basis rules make this manual approach nearly impossible. This guide shows you exactly how to track crypto cost basis using IRS-compliant FIFO, LIFO, and Specific ID methods,

Let's fix your crypto accounting before tax season hits.

What is crypto cost basis?

Your cost basis is the original value of a crypto asset for tax purposes, specifically, what you paid to acquire it plus any fees or gas costs. When you sell, swap, or spend crypto, the IRS calculates your taxable gain or loss by subtracting your cost basis from the proceeds. That is the fair market value at the time of the transaction.

According to IRS Publication 551 and Revenue Procedure 2024-28, cryptocurrency is treated as property, making cost basis tracking mandatory for all disposals.

Here's the formula: Cost Basis = Purchase Price + Transaction Fees + Gas Fees

Example: 

Say you bought 1 ETH for $2,000 and paid $15 in fees. 

Your cost basis is $2,015. If you later sell that ETH for $3,000, your taxable gain is $985 ($3,000 - $2,015). 

Why crypto cost basis tracking matters in 2025?

Simple on paper, messy in practice when you're juggling 10 wallets, hundreds of trades, and DeFi protocols that don't send you tax forms. Cryptos like Ethereum or Bitcoin cost basis tracking becomes exponentially more complex with multiple purchase dates and prices. Cost basis only matters when you dispose of crypto, selling, swapping, spending, or gifting triggers a taxable event. Transferring between your own wallets does not. The IRS treats every disposal as a taxable event, which means you need a clear cost basis for every asset you've ever acquired to file accurately.

Getting this wrong doesn't just cost you in overpaid taxes. Auditors will reconstruct your trades using less favorable methods if you can't prove your cost basis, often resulting in much higher bills.

Use our free crypto tax calculator to estimate your liability.

2025 IRS Per-Wallet tracking rules (new!)

Here's what changed: The IRS now requires per-wallet cost basis tracking for all crypto transactions starting in 2025. This replaces the "universal pool" method most traders used, where you could treat all your Bitcoin (for example) as one big pile regardless of which wallet or exchange held it.

Universal vs Per-Wallet cost basis tracking: What changed

Under the universal method, if you bought 2 BTC on Coinbase and 1 BTC on Kraken, you could calculate cost basis across all 3 BTC together when you sold from either platform. The IRS is phasing this out per Revenue Procedure 2024-28.

Now, each wallet and exchange is treated as a separate inventory. If you sell BTC from Coinbase, you can only use the cost basis from BTC purchased and held on Coinbase, not from your Kraken account or your hardware wallet. This mirrors how stock investors must track shares in different brokerage accounts separately.

Why the change? The IRS wants to eliminate ambiguity and prevent taxpayers from cherry-picking advantageous cost basis across accounts. It also aligns with the new broker reporting requirements that exchanges will follow starting in 2025.

If you've been using universal tracking, you'll need to reconcile your historical data and split it by wallet before filing your 2025 taxes. Most software hasn't caught up yet, which is where automation becomes essential. 

Major Crypto Cost Basis Calculation Methods

The IRS accepts several methods for determining which specific units of crypto you're selling when you have multiple purchases at different prices. Once you choose a method, you must apply it consistently within each wallet.

FIFO (First-In, First-Out) Crypto Tax

FIFO assumes you sell the oldest crypto you own first. If you bought BTC in January, March, and June, then sold some in December, FIFO treats the January purchase as the one you sold.

Example: 

You bought 0.5 BTC at $30,000 in February, then 0.5 BTC at $45,000 in August. 

In November, you sell 0.5 BTC for $50,000. 

FIFO uses the February purchase as your cost basis, giving you a gain of $20,000 ($50,000 - $30,000).

Pros:

• IRS default method if you don't specify another

• Simple to calculate and defend in audits

• Works well if your early purchases have higher cost basis (bear market scenario)

Cons:

• Can trigger higher taxes in bull markets where early purchases have lower cost basis

• Less flexibility for tax optimization

FIFO is the safest choice for most traders. It's the method the IRS expects unless you document otherwise, and it works seamlessly with automated tracking systems like Blockstats.

LIFO (Last-In, First-Out) and HIFO

LIFO assumes you sell your most recently acquired crypto first. Using the same example above, LIFO would use the August purchase at $45,000 as your cost basis, resulting in only a $5,000 gain.

The catch? The IRS has historically rejected LIFO for securities and inventory unless you're a qualified business using accrual accounting. While some crypto tax professionals argue LIFO is permissible for digital assets (since crypto isn't technically a security), the IRS hasn't issued clear guidance accepting it. Use LIFO at your own audit risk.

What is HIFO cost basis?

HIFO (Highest-In, First-Out) sells the highest-cost-basis units first to minimize gains. It's essentially a variation of Specific Identification (covered next) rather than a standalone method. The same audit risk applies if you can't prove which specific units you disposed of.

Unless you have sophisticated tracking and a tax advisor who explicitly recommends LIFO/HIFO for your situation, stick with FIFO or Specific ID.

Specific Identification (Spec ID)

Specific Identification lets you choose exactly which crypto units you're selling, transaction by transaction. This gives you maximum control over your tax outcome, you can sell high-cost-basis units to minimize gains or sell low-cost-basis units to harvest losses.

How it works: At the time of each sale, you must identify which specific purchase (tax lot) you're disposing of. You need contemporaneous records, meaning documentation created at or before the time of the transaction, not retroactively during tax prep.

IRS requirements for Spec ID:

• Clear documentation showing which lot you sold

• Records must exist at the time of the transaction

• Must be able to trace specific units from acquisition to disposal

Example: 

You hold ETH purchased on three dates: $1,500, $2,200, and $3,800. ETH is now worth $3,000.

You want to sell 1 ETH and realize a loss for tax purposes. With Specific ID, you identify the $3,800 lot, creating an $800 capital loss. 

With FIFO, you'd be forced to use the $1,500 lot, creating a $1,500 gain instead.

The challenge? DeFi and multi-chain environments make manual Spec ID nearly impossible. When you're interacting with liquidity pools, yield farms, or layer-2 bridges, tracking individual tax lots by hand is a nightmare. This is where platforms like Blockstats automate lot tracking across all your wallets and protocols, maintaining the documentation the IRS requires.

Spec ID offers the most tax optimization potential but demands either meticulous manual records or robust automation. For active traders managing multiple wallets, it's the difference between overpaying by thousands and optimizing your liability legally.

Need help estimating your gains and losses? Try our free crypto tax calculator.

Advanced Scenarios: DeFi, Airdrops, Staking, NFTs, and Wallet Transfers

Standard buy-and-sell transactions are straightforward. Here's how to handle the messy stuff.

What Is the cost basis of a DeFi Swap?

Swapping ETH for DAI on Uniswap is a taxable event. Your cost basis in ETH determines your gain or loss, and your cost basis in the DAI you received is the fair market value at the moment of the swap, plus gas fees.

What is the cost basis of a Liquidity Pool tokens? 

When you deposit ETH and USDC into a liquidity pool, you're disposing of both assets, which is taxable. When you withdraw, you're disposing of your LP tokens and acquiring the underlying assets at their current fair market value. Track each leg separately.

What is the cost basis of staking rewards? 

Rewards are taxed as ordinary income at fair market value when you receive them. That value becomes your cost basis. When you later sell the staked tokens, calculate capital gains using that income value as your basis.

What is the cost basis of airdrops?

Taxed as ordinary income at fair market value when you gain control of the tokens. That value is your cost basis for future sales.

What is the cost basis in Hard Forks or Chain Splits?

If a blockchain splits like Bitcoin Cash from Bitcoin, the IRS considers new tokens as income at $0 cost basis if they didn't exist before the fork. However, if you can establish a fair market value at the time you received control, use that as cost basis.

What is the cost basis of an NFTs? 

Treated like any other crypto property. Cost basis includes the purchase price of the NFT plus gas fees. Selling triggers capital gains or losses.

How is cost basis calculated for crypto gifts?

If you receive crypto as a gift, your cost basis is the donor's cost basis. If you give crypto, there's no taxable event for you, but the recipient inherits your cost basis.

Are wallet-to-wallet transfers taxable?

Not taxable. Sending BTC from Coinbase to your Trezor is just moving your own property. Your cost basis travels with it.

What if your cost basis data is lost or missing?

If you can't prove original cost basis in cases, like lost exchange records, defunct platforms, etc the IRS may assume a $0 cost basis, meaning your entire proceeds are taxable as gain. This is painful. 

Reconstruct what you can using blockchain explorers, old emails, or bank statements showing fiat deposits. For gaps, consider professional help or software that can infer reasonable basis from on-chain data.

Blockstats handles these scenarios automatically across Ethereum, Solana, and 500+ other networks. DeFi swaps, staking, LP tokens, airdrops, it categorizes and calculates cost basis in real time, so you're not piecing together transactions manually during tax season.

Automation & AI: How Blockstats Makes Per-Wallet Tracking Stress-Free

Why Manual Calculations Fail in 2025

Spreadsheets worked when you had one wallet and bought Bitcoin once a month. They collapse under 2025's per-wallet requirements and the reality of modern crypto trading.

Problems with manual tracking:

• Human error: One mistyped date or forgotten fee throws off your entire tax liability

• Data loss: Exchanges delete old records; wallets don't provide CSV exports

• Multi-wallet chaos: Reconciling 5+ wallets manually takes 20+ hours

• DeFi complexity: Tracking LP tokens, yield farm rewards, and protocol interactions is nearly impossible by hand

• Audit risk: No documentation trail, no proof of Specific ID, no defense if the IRS questions your numbers

Manual vs Automated Cost Basis Tracking:

If you've got more than $10,000 in crypto or made more than 50 transactions last year, manual tracking isn't just painful, it's a liability.

Blockstats' Automated Solution

Blockstats eliminates the guesswork with AI-powered portfolio tracking and tax automation built specifically for the 2025 per-wallet rules.

How it works:

1. Connect your accounts: Sync exchanges (Coinbase, Binance, Kraken, 500+ others), wallets (MetaMask, Ledger, Phantom), and blockchains (Ethereum, Solana, Polygon) via API or wallet address. No manual CSV uploads.

2. Automatic transaction import: Blockstats pulls every trade, transfer, swap, reward, and fee across your entire crypto history. It identifies transfers between your own accounts so they're not double-counted as taxable events.

3. Real-time per-wallet cost basis calculation: The platform calculates cost basis separately for each wallet and exchange using your chosen method. You can switch methods per wallet if needed.

4. DeFi and multi-chain intelligence: Blockstats tracks liquidity pool deposits, staking rewards, airdrops, NFT sales, and cross-chain bridges, automatically categorizing each event and applying the correct cost basis rules.

5. Generate IRS-ready tax forms: Blockstats crypto tax software export Form 8949, Schedule D, and TurboTax-compatible files with one click. Every transaction is documented with timestamps, wallet addresses, and cost basis calculations for full audit protection.

6. Ongoing monitoring: Blockstats updates your portfolio in real time, so you always know your current tax position. See unrealized gains/losses, track performance by wallet, and plan tax-loss harvesting opportunities before year-end.

Ready to stop wrestling with spreadsheets? Start automated per-wallet tracking with Blockstats and get your first report free, see exactly what you'd file before you pay a cent.

Get Your Crypto Taxes Right in 2025

The 2025 per-wallet cost basis rules aren't optional, and the IRS isn't offering extensions for confusion. Get your tracking system in place now, before you're scrambling in April with incomplete records and an audit notice.

FIFO keeps you safe and compliant. Specific Identification gives you optimization if you have the tools to document it. Manual spreadsheets will fail you the moment you add a second wallet or touch DeFi.

Blockstats handles per-wallet tracking automatically across every exchange, wallet, and blockchain you use. Connect your accounts, sync your history, and generate audit-ready tax forms in minutes instead of days. 

Try it free and see your exact tax position before the deadline hits.

Frequently Asked Questions

What is the best cost basis method for crypto?

FIFO (First-In, First-Out) is the safest and most widely accepted method. It's the IRS default, easy to defend in audits, and works well for most traders. Specific Identification offers more tax optimization if you have robust tracking and documentation, but requires contemporaneous records for each transaction. LIFO is risky due to unclear IRS guidance for crypto.

What if I lost records or cannot find cost basis?

Reconstruct what you can using blockchain explorers like Etherscan, Solscan, old emails, bank statements showing fiat deposits, or screenshots. If you truly can't prove cost basis, the IRS may treat it as $0, meaning your entire sale proceeds are taxable as gain. Crypto tax software like Blockstats can help recover on-chain transaction data even from defunct exchanges or old wallets.

Does transferring crypto between my own wallets trigger taxes?

No. Moving crypto from one wallet you control to another wallet you also control is not a taxable event, it's just a transfer of your own property. However, you must document both the sending and receiving addresses so your tax software doesn't mistakenly treat the transfer as a sale and repurchase.

How do transaction fees and gas fees impact cost basis?

All fees increase your cost basis. If you pay $2,000 for 1 ETH plus $30 in fees and $12 in gas, your total cost basis is $2,042. Higher cost basis means lower taxable gains (or larger losses) when you sell. Always include fees in your calculations, missing them can cost you hundreds in extra taxes.

Can I use the average cost method for crypto?

No. The IRS does not currently allow an average cost basis for cryptocurrency. Average cost is permitted for mutual fund shares, but crypto is classified as property, not a security. You must use FIFO, LIFO risky, or Specific Identification. Some international tax jurisdictions allow average cost for crypto, but U.S. taxpayers cannot.

How does the 2025 per-wallet rule affect my taxes from previous years?

You don't need to amend old returns unless you made errors. The per-wallet rule applies to transactions starting in 2025. However, if you've been using universal pooling, you'll need to split your current inventory by wallet before calculating 2025 disposals. Reconcile your existing holdings now to avoid a painful transition during tax season.

What happens if I used universal pooling in 2024 and per-wallet tracking in 2025?

You'll need to reconcile your 2024 ending balances by wallet to establish your 2025 starting cost basis for each account. This means going back through your 2024 transactions and determining which specific units ended up in which wallets at year-end. Software like Blockstats can automate this reconciliation by analyzing your full transaction history.

Is Blockstats reliable for international users and multi-chain portfolios?

Yes. Blockstats supports 500+ exchanges, wallets, and blockchains including Ethereum, Solana, Polygon, Avalanche, and many layer-2 networks. The platform handles DeFi protocols, cross-chain bridges, and NFT marketplaces across multiple ecosystems. Tax forms are IRS-compatible for U.S. users, and international users can export detailed transaction reports for their local tax requirements.