Same sale, two very different results
Which coin left the account? Under FIFO, the one that arrived first, whatever it cost. Take round numbers. One unit bought in March 2024 for $20,000, a second in March 2026 for $60,000, and one of them sold in November 2026 for $50,000.
FIFO says the 2024 unit went. That gives a $30,000 gain, and because the coin was held more than a year, a long-term one.
Pick the 2026 coin as the one sold and the result flips to a $10,000 short-term loss. One trade, one price, one day, yet the cost, the holding period and the direction of the result all change with the identification.
Where the US writes it down
The IRS states the fallback in answer 41 of its virtual currency FAQ. Units you do not identify count as sold “in chronological order beginning with the earliest unit,” which the FAQ calls “a first in, first out (FIFO) basis.”
From January 1, 2025, ordering rules in Treasury regulation 1.1012-1(j) work inside each wallet or account. For coins held by a broker, units not identified in time are treated as sold from the earliest date they were acquired in that broker’s custody, a default IRS Notice 2026-20 calls the “FIFO rule.”
So the queue is per account. Bitcoin held at two exchanges forms two separate lines, and the oldest coin at one platform says nothing about a sale at the other.
On a broker’s forms
Exchange Kraken’s guide to its 2025 statements explains why its customers saw FIFO figures. It “did not solicit or receive a lot relief method election” from them, and “FIFO is the default method when no alternative method is selected.”
The FIFO costs were for the customer’s eyes. Kraken says the IRS received gross proceeds only for 2025, the first year of Form 1099-DA, so the cost column was an estimate a seller could replace with figures from their own records.
Britain does it differently
UK holders have no FIFO queue to follow. HMRC’s Cryptoassets Manual matches a sale first with same-day purchases of that token, next with purchases in the following 30 days, and takes the rest from a section 104 pool at its average cost.
Switching method at tax time
Can a seller pick the most expensive units in April, once the year is over? Kraken’s own FAQ asks that very question about HIFO, highest in, first out, as a way to reduce gains. Its answer is that IRS rules require units to be adequately identified by the time of the sale, and “if you did not, FIFO generally applies by default.”
Temporary IRS relief lets broker customers record that choice in their own books through December 31, 2026, the subject of specific identification. After a sale, the choice is gone.
A general explainer, not tax advice.