What is specific identification?
Choosing exactly which units of an asset you are disposing of, rather than accepting a default ordering, so you control the gain or loss reported.
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Choosing exactly which units of an asset you are disposing of, rather than accepting a default ordering, so you control the gain or loss reported.
The United States Internal Revenue Service permits it for digital assets where the taxpayer documents the unit's acquisition date and time, its basis and fair market value at acquisition, and the same details at disposal, per its virtual currency guidance. Absent that identification, the earliest units are treated as sold first. Records must be made no later than the disposal. See fifo, hifo, and tax lot.
The method is where most of the controllable tax outcome in a crypto portfolio lives, and it is also the one that quietly stops working when records are incomplete.
How it works
If you bought the same asset five times at five prices, you hold five tax lots. Selling part of the position raises the question of which lot left. Specific identification lets you answer it, and the answer changes the reported gain without changing what you actually own afterwards.
The requirement is documentation, and its timing is the part people miss. The identification has to be made no later than the disposal, not reconstructed at filing time in April. The Internal Revenue Service sets out in its digital asset guidance what has to be recorded: the date and time each unit was acquired, its basis and fair market value at acquisition, and the date, time, and value at disposal.
Two structural rules sit around it in the United States. Revenue Procedure 2024-28 requires basis to be tracked account by account rather than pooled across all holdings, so identification happens within a wallet or account rather than across your whole position (source: Internal Revenue Service Revenue Procedure 2024-28). And absent a valid identification, the default is first in, first out.
Other jurisdictions differ sharply. Several require pooling of identical assets into a single average cost, which removes the choice entirely. Confirm the rule where you file.
Example
Illustrative figures. You hold three lots of one coin: 1 unit bought at $20,000, 1 at $60,000, and 1 at $45,000. You sell 1 unit at $50,000.
| Lot identified | Basis | Proceeds | Gain or loss |
|---|---|---|---|
| Earliest, the default | $20,000 | $50,000 | $30,000 gain |
| Highest cost | $60,000 | $50,000 | $10,000 loss |
| Middle | $45,000 | $50,000 | $5,000 gain |
One sale, one price, three legally different outcomes. The only thing separating them is a record made at the right time.
Why it matters when you buy
Every purchase creates a lot, and lots you cannot document are lots you cannot identify. Keeping buys on fewer venues makes the records simpler, and holding-period rules that change the rate differ by country, as the tax section sets out. The crypto tax basics guide covers the wider picture.
Related terms
- tax lot — the unit being identified
- fifo — the default when nothing is identified
- hifo — the highest-cost-first strategy
- cost basis method — the wider choice this belongs to
- wallet by wallet accounting — the per-account requirement
- capital gains — what the choice changes
Questions
Can I choose lots after the year ends?
Not in the United States. The identification must be in place no later than the disposal itself, which makes it a bookkeeping habit rather than a filing-season decision.
Does my exchange do this for me?
Some venues let you select a lot at sale and some do not, and reporting practice varies. The obligation to hold adequate records is yours regardless of what the platform provides.
Is specific identification allowed everywhere?
No. Several jurisdictions require pooling identical assets at an average cost, which leaves no lot to identify. Check the rule that applies where you file before relying on it.