The rules on cost basis for US crypto taxes changed significantly on January 1, 2025, so it is worth understanding the current position before choosing anything.
What changed in 2025
From January 1, 2025, the IRS requires cost basis to be tracked wallet-by-wallet (or account-by-account). Each wallet or exchange account is treated as its own ledger, and when you sell from a wallet, the basis you use must belong to units held in that wallet. The old "universal" approach, pooling all your holdings across every wallet and exchange into one big ledger, is no longer permitted.
To help people transition, the IRS published Rev. Proc. 2024-28, a one-time safe harbor letting taxpayers allocate their existing unused basis across wallets as of January 1, 2025. The allocation had to be documented by that date and is irrevocable, so if you previously used the universal method and have not done this, speak to a tax professional about how to get your records straight.
The methods, under the current rules
FIFO - First In, First Out - the default method. The first units you acquired in a wallet are treated as the first ones sold. If you bought 1 BTC in a wallet for $30k and later another for $60k, selling 1 BTC matches against the $30k unit first.
Specific identification - instead of FIFO, you can identify exactly which units you are selling, provided your records adequately identify them (date acquired, cost basis, and fair market value of each unit). Strategies like HIFO (highest cost first, which usually produces the lowest gain today) or LIFO (most recent units first) are only allowed as forms of specific identification with adequate records, and only using units held in the wallet you are selling from.
Bear in mind that methods like HIFO lower your gains now by using up your highest-cost units first, which leaves lower-cost units behind and can mean larger taxable gains later. Whichever approach you take, consistency and good records matter more than squeezing out the lowest number in a single year.
Choosing a method in Recap
Recap lets you configure the cost basis method used for each tax year, with FIFO as the default as it is the most straightforward and widely accepted approach. When it comes to the wallet-by-wallet rules, speak to a tax professional about how best to apply them to your own records and reports.
There is more information in the IRS's digital assets guidance, and we would recommend speaking to a certified tax professional before changing method, especially if you used the universal approach before 2025 or think a different method could make a significant difference to your tax bill.
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Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.