Crypto Tax-Lot Selection: Specific Identification, Done Right

The difference between a valid specific identification and an invalid one rarely comes down to which lot you picked. It comes down to when you picked it and what record proves it. In the US, specific identification is the only legitimate route to a HIFO or LIFO-style result, and it is also the one most often botched, reconstructed months later as a tax-time spreadsheet that no longer counts. This article is about the discipline that makes a lot selection hold up: the at-or-before-sale timing rule, the adequate-records standard, and the per-wallet boundary that has applied since 2025. For how this sits within the wider picture of which method your country mandates, see the cost basis methods pillar; for what FIFO, LIFO and HIFO each do to a gain, see the mechanics article.

What to remember

• Specific identification means nominating which acquisition lot is treated as sold, instead of taking the FIFO default.
• In the US under Rev. Proc. 2024-28 it is valid only if made at or before the sale, supported by adequate records, and made within a single wallet or account from 1 January 2025.
• Picking the lot afterwards, when preparing the return, is not valid, and FIFO applies instead.
• Adequate records means a contemporaneous lot identification or a standing instruction set before the sale, not an after-the-fact optimisation.
• A one-time safe harbor lets you allocate pre-2025 unused basis across your wallets.
• The UK and France do not use lot selection at all, since pooling and the 150 VH bis formula never pick an individual lot.

What it is, and the condition attached

Specific identification lets you nominate the exact acquisition lot deemed sold, rather than taking the FIFO default. It is the mechanism behind any HIFO or LIFO-style outcome. But it is conditional. Under IRS Rev. Proc. 2024-28 the identification must be:

• made at or before the time of the sale;
• supported by adequate records;
• from 1 January 2025, made within the same wallet or account (per-wallet basis).

Miss any one condition and it is not specific identification, so the FIFO default governs.

The timing rule is the whole game

The defining failure is after-the-fact lot selection: preparing the return months later and choosing whichever lot minimises tax. That is not specific identification. The choice has to be contemporaneous, at or before the sale, through either:

• standing instructions configured with the broker or tool before sales occur; or
• lot-identifying metadata recorded at the time of the disposal.

A figure "optimised at filing time" with no contemporaneous identification fails, and the default method applies regardless of what the spreadsheet says.

Adequate records

The evidence must show the lot was chosen at or before the sale, not inferred later. This is the audit-trail discipline applied to lot selection.

The per-wallet change

From 1 January 2025, basis is per wallet and account (Rev. Proc. 2024-28). Specific identification must therefore select among lots in that same wallet; you cannot reach across wallets to find a more favourable lot. The one-time safe harbor lets you allocate pre-2025 unused basis to wallets, and after that the wallet boundary constrains every identification.

Where it doesn't apply

Specific identification is a lot-based concept. The UK (share-pooling: same-day, 30-day, Section 104) and France (the 150 VH bis portfolio formula) do not select individual lots, so specific identification is not the mechanism there (see cost-basis methods). Attempting it in a pooling or portfolio jurisdiction means applying the wrong framework.

Practical guidance

1. Decide the lot at or before the sale — never at filing time.
2. Set standing instructions in the broker/tool before disposals occur.
3. Keep contemporaneous lot records (date, cost, units) tying sold units to a lot.
4. Respect the wallet boundary — US specific ID is per wallet/account from 2025.
5. Use the safe harbor to allocate pre-2025 unused basis to wallets.
6. Don't attempt specific ID in the UK/France — pooling / 150 VH bis apply.

Choosing a tool: the contemporaneity test

Many tools advertise specific identification, including Koinly and CoinLedger, but the feature is only as valid as the timestamp behind it. The decisive question is whether the tool can prove the lot was chosen before the sale, not just that it can produce a favourable number. When evaluating one, confirm that it:

• creates the identification record at or before the trade, ideally through a standing instruction you set in advance, rather than recalculating the optimal lot when you generate the report;
• enforces the per-wallet boundary on every disposal from 2025, so it cannot quietly reach into another wallet for a better-priced lot;
• retains the supporting evidence (lot inventory, identification record, disposal record) for the statute-of-limitations period, rather than overwriting it each time you re-run the numbers.

An after-the-fact lot optimiser dressed up as specific identification is the exact thing the IRS rule is designed to disallow.

Step-by-step: executing a valid specific identification in 2026

The following sequence describes what a compliant Specific Identification looks like for a US taxpayer subject to the per-wallet rule from IRS Rev. Proc. 2024-28.

Step 1 — Inventory the lots in the selling wallet

Before any sale, confirm which lots are available in the specific wallet or exchange account from which the disposal will occur. Cross-wallet lot selection is not available from 2025. For each lot, record: date acquired, units, per-unit cost, and total cost basis. Example wallet inventory:

Step 2 — Decide the lot before (or at) the sale

The taxpayer decides to sell 1.5 ETH. They review the options: selling Lot A produces a long-term gain taxed at the preferential rate; selling Lot B or C produces short-term ordinary income but a smaller current gain. The decision is made and recorded before the trade is executed — not at filing.

For a tool that supports standing instructions, the taxpayer configures "select highest-cost lot first" before trading. The tool logs this instruction with a timestamp preceding the sale.

Step 3 — Record the contemporaneous identification

At the time of the sale, the system records: which lot was designated (e.g. Lot B), the lot's acquisition date and cost, the disposal date, units sold, and proceeds. This record must exist with a timestamp at or before the sale. If the tool does not create this record automatically, the taxpayer documents it in a trade log contemporaneously.

Step 4 — Retain adequate records

The records that constitute adequate evidence for Specific Identification include: the lot-level inventory as of the sale date, the identification record created at or before sale, the disposal transaction record, and a reconciliation tying the identified lot to the cost basis reported on the tax return. These are retained for the applicable statute of limitations — typically at least three years from the filing date, longer if basis questions arise.

Step 5 — Report consistently

On Schedule D and Form 8949, the reported basis must match the identified lot's cost, and the holding period must reflect the identified lot's acquisition date — not an average or FIFO default. If a tool generated the identification, the exported tax data should reflect the specific lot, not a recalculated figure.

What invalidates the identification: Selecting the lot post-sale, retroactively re-running the lot selection to minimise tax at filing time, using a universal-pool selection after the 2025 per-wallet rule, or failing to retain the contemporaneous identification record. In each case, the IRS default — FIFO within the wallet — applies regardless of what the taxpayer intended.

Where Wag3s fits

Wag3s Folio is built around the timing rule rather than around it. You configure the lot-selection instruction in advance, it records the identification with a timestamp at or before each disposal, and it enforces the per-wallet boundary from 2025 so a selection cannot stray across wallets. The contemporaneous record and lot inventory are retained as the evidence a specific identification needs to stand up. Where you file in a pooling or 150 VH bis jurisdiction, it applies that framework instead. None of this removes the need for a qualified tax adviser to review your position; it gives them a record that supports it rather than one assembled after the fact.

Further reading

• FIFO vs LIFO vs HIFO for Crypto
• US Crypto Per-Wallet Cost Basis (2025)
• Crypto Cost Basis Methods 2026
• Crypto Tax-Loss Harvesting
• Crypto Audit Trail and Piste d'Audit Fiable
• Realized vs Unrealized Gains in Crypto

Sources

• IRS — Rev. Proc. 2024-28: Specific Identification at or before the sale, adequate records, per-wallet/account basis from 1 January 2025, and the one-time safe harbor for pre-2025 unused basis (FIFO applies where no valid identification is made).
• IRS — Frequently asked questions on digital asset transactions: the records a taxpayer must keep to identify the specific units disposed of, with their acquisition date and cost.
• HMRC — Cryptoassets Manual CRYPTO22200 and France Article 150 VH bis (Légifrance): pooling and the portfolio formula do not use lot selection.