What is LIFO (last in, first out)?

A cost basis method that treats the most recently acquired units as the first ones sold.

It generally reduces near-term gains during a rising market, because recent purchases carry higher basis, and it usually produces short-term rather than long-term holding periods. Not every jurisdiction permits it, and in the United States it is available only as a form of specific identification, which requires records adequate to identify the exact units disposed of.

Consistency matters as much as the choice. Switching method between years, or between exchanges, is where reconstructed records fall apart, and the reconstruction is the part a tax authority examines.

How it works

Because the United States Internal Revenue Service treats virtual currency as property, stated in Notice 2014-21, each disposal is measured against the basis of the specific units sold. Where you cannot identify which units those were, the default is first in, first out.

Last in, first out is a rule for making that identification: at each sale, nominate the most recently acquired lot. To use it you need records showing, for each unit, the date and time acquired, its basis, the date and time sold, and the amount received. Identification also has to be made within a specific wallet or account rather than across your holdings in aggregate, and the Internal Revenue Service published Revenue Procedure 2024-28 setting out a safe harbor for allocating existing basis to particular wallets and accounts.

The holding period consequence is the one people overlook. Selling your newest units means selling units you have held the shortest time, so gains that might otherwise have qualified for long-term treatment are realized as short-term. In a jurisdiction where the two are taxed differently, a lower reported gain can still produce a higher bill.

Elsewhere the question may not arise at all. Several countries require pooled average cost, in which case no lot selection is permitted.

Example

Illustrative arithmetic. You bought 1 ETH at $1,800 in January, 1 ETH at $3,400 in June, and 1 ETH at $2,500 in August. You sell 1 ETH for $3,000 in September.

Last in, first out reports $700 less gain than first in, first out on the identical sale, and it does so by consuming the newest lot, which is short-term. The January lot with its $1,800 basis stays on your books and its gain arrives later.

Why it matters when you buy

Every purchase creates a lot, and moving coins between venues is where basis records usually break, so keep the trade history from each exchange you use. The tax section covers how holding periods are treated by jurisdiction, and the tax basics guide covers the underlying concepts. None of this is tax advice, and the rules differ by country.

Related terms

• fifo: the default when units are not identified
• hifo: nominating the highest-cost lot instead
• specific identification: the rule these methods sit inside
• cost basis method: the general choice being made
• tax lot: one purchase tracked as a unit
• wallet by wallet accounting: identifying units per account

Questions

Is last in, first out allowed in the United States?

Only as an application of specific identification, and only with records adequate to identify the units. It is not a separate election, and some other countries permit no lot selection at all.

Does it lower my tax?

It usually lowers the reported gain in a rising market and produces short-term holding periods. Whether that lowers the bill depends on the rate difference between short and long term where you live.

What if my exchange reports a different figure?

Broker reporting and your own records need to reconcile. In the United States, dispositions are reported on Form 1099-DA, and a mismatch is something to resolve before filing rather than after.