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I would like to start using specific lots, rather than FIFO, for my capital gains tax calculation as it relates to bitcoin holdings.

If I sent coins to a specific wallet setup for the express purpose of identifying those transactions, would it work for this purpose?

For example, suppose I have a wallet A. I buy 10 bitcoins at $100 each on 2012/01/01 on exchange XYZ and send them to wallet A. I then setup wallet B. I buy 2 more bitcoin on 2017/01/01 for $1000 each, at the same exchange, XYZ, and send them to wallet B. Then I sell the 2 bitcoins from wallet B for $1200.

Would I be able to claim that since the bitcoins I sold were in wallet B and never touched those in wallet A that I could use the basis for the wallet B coins? That is, could I claim a profit of ($1200 - $1000) x (2) = $400, rather than the FIFO method, where I'd use the basis from 2012/01/01 coins, which would be ($1200 - $100) x 2 = $2200?

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  • No one is reporting anything to the IRS on your behalf. The fact that you are reporting anything is leaps and bounds more than anyone else is doing.
    – quid
    Commented May 11, 2017 at 20:42

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So you're talking about the LIFO method. This is highly related to this question.

To answer your question; this has to be confirmed by your broker (which, in this case, is you). The method is accepted, but you have to be consistent with it for the entire tax period.

Good luck,

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    The example is LIFO because there are only two lots, but the question title makes it seem he's actually asking about the possibility of selling arbitrary specific lots (potentially neither FIFO nor LIFO).
    – BrenBarn
    Commented May 11, 2017 at 17:58
  • @BrenBarn gotcha! I read it too quickly. Regardless, the IRS is fine with the method as long as you have proof and are consistent. I, personally, would never divulge from the FIFO or LIFO methods as they are the easiest to keep track of.
    – Liam
    Commented May 12, 2017 at 20:39
  • Aside: you mean diverge from, or perhaps deviate from, but not divulge from.
    – dave_thompson_085
    Commented Feb 11, 2018 at 18:58
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When buying or selling securities from different brokerages held in different brokerages, the various lots are held entirely separate and unrelated for tax purposes[1]. The same should apply to cryptocurrencies, and I've been reporting my taxes this way for years with nary a complaint.

The key point is that lot selection must be declared at time of sale; it cannot be chosen after the fact (e.g. choosing between LIFO or FIFO when filing your taxes based on its implications after the fact is right out). Moving coins between accounts (which are specifically selected when selling), and using a consistent method (e.g. FIFO) within accounts, clearly (and possibly cryptographically) encodes your intent.

[1] With the exception of wash sale rules, which likely don't apply to Bitcoin as it has been declared personal property and wash sales explicitly apply only to securities, though one must watch out for the "economic substance doctrine" when claiming a loss https://www.bitcointaxsolutions.com/bitcoin-wash-sales/

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