Last updated: October 19, 2026 ยท Applies to the 2026 tax year (returns filed in 2027)
Since January 1, 2025, the IRS requires crypto investors to track cost basis wallet by wallet (or account by account) instead of across all their holdings at once. When you sell a coin, only the basis of units held in that wallet or exchange account can be used. This guide explains what changed, why it can move your tax bill by thousands of dollars, and what to do in 2026 whether or not you prepared for the change.
Key takeaways
- The old “universal” method, where any purchase anywhere could be matched to any sale, no longer works from 2025.
- Each wallet and exchange account now has its own pool of lots, purchase dates and basis.
- A one-time safe harbor (Rev. Proc. 2024-28) let investors assign their leftover basis to wallets as of January 1, 2025.
- Without a specific identification, sales are treated as first in, first out (FIFO) within that wallet or account.
- For 2026, Notice 2026-20 still lets you identify the lots you sell on an exchange through your own records.
What changed: universal vs wallet-by-wallet
Before 2025, many investors and most crypto tax software treated all their coins of the same type as one big pile. If you sold 1 BTC on an exchange, you could match it to a high-cost purchase you had made somewhere else, even if those coins were sitting in a hardware wallet. The final broker regulations ended that. Under the wallet-by-wallet rule, the basis you can use for a sale is limited to the units in the wallet or account the coins actually leave from.
| Universal method (before 2025) | Wallet-by-wallet (2025 onward) | |
|---|---|---|
| Pool of lots | All coins of one type, everywhere | Separate pool for each wallet or account |
| Which basis a sale can use | Any lot you own | Only lots in the wallet or account sold from |
| Default if you don’t identify lots | FIFO across everything | FIFO within that wallet or account |
| Matches your 1099-DA? | Often not | Closer, since brokers track each account |
The change also brings your own records in line with your exchange’s. A broker only knows the coins in its own account, so the basis on your Form 1099-DA is already account by account. Mixing in lots from other places was a common reason a 1099-DA doesn’t match your records.
Why it matters: a worked example
Maria bought 1 BTC in 2021 for $20,000 and another 1 BTC in 2024 for $60,000. By the end of 2024 she kept one BTC on an exchange and moved the other to a hardware wallet. In 2026 she sells the BTC on the exchange for $100,000.
| Basis that lives in the exchange account | Proceeds | Basis used | Long-term gain |
|---|---|---|---|
| The 2024 lot ($60,000) | $100,000 | $60,000 | $40,000 |
| The 2021 lot ($20,000) | $100,000 | $20,000 | $80,000 |
Under the old universal method, Maria’s software could simply pick the $60,000 lot. Now the answer depends on which lot is actually assigned to the exchange account. That is a $40,000 difference in taxable gain, which at a 15% long-term rate is $6,000 of federal tax. Nothing about her trades changed; only where the basis is recorded.
The January 1, 2025 safe harbor
To smooth the transition, Rev. Proc. 2024-28 let investors make a one-time “reasonable allocation” of their unused basis (basis from coins they still held) to the wallets and accounts where they held those coins on January 1, 2025. There were two ways to do it:
- Specific unit allocation: you assign particular lots, by purchase date and cost, to each wallet. It had to be completed before your first sale or transfer of that coin in 2025, or by the due date of your 2025 return if that came first.
- Global allocation: you apply a rule (for example, highest cost to the exchange account first) that had to be written down in your records before January 1, 2025, and then carried out by the later of the same two dates.
The allocation is irrevocable. It can only use basis you have not already used on earlier sales, and you still need records proving the original purchases. If you used crypto tax software in late 2024, check whether it recorded an allocation for you and keep a copy of that report.
If you didn’t make a safe harbor allocation
Many people never heard of the safe harbor. Missing it does not mean you lose your basis. It means you cannot rely on the simplified allocation, and each wallet’s basis has to be supported by tracing: which purchases actually ended up in that wallet, based on your exchange history and on-chain transfers. Where you cannot identify specific units, the default is FIFO within each wallet or account.
In practice, that means rebuilding a per-wallet history: import every exchange and wallet into one tool, match every transfer between your own accounts, and let the software compute lots per wallet. If your history is long or messy, this is the point where a CPA or enrolled agent who handles crypto is worth paying for.
Choosing lots when you sell in 2026
Inside a single wallet or account, you can still choose which lot you sell (specific identification), as long as you do it no later than the time of the sale. Otherwise FIFO applies. For coins held at a broker, the regulations normally require you to tell the broker. Notice 2025-7 gave temporary relief for 2025, and Notice 2026-20 extended it through December 31, 2026. During that period you can identify units in your own books and records, either:
- by recording, no later than the sale, an identifier such as the purchase date or price of the units you are selling; or
- by recording a standing order in your own records (for example, “highest cost first”) before the sale.
Keep in mind that the broker will still report basis on the 1099-DA using its own method. If your identification differs, you report your figures on Form 8949 with the right adjustment, as explained in 1099-DA missing cost basis.
What happens when you move coins between wallets
Moving coins between your own wallets is not a sale and is not taxable (see transferring crypto between wallets). Under the wallet-by-wallet rule, the moved units carry their own basis and purchase dates into the new wallet. Two things to watch:
- Which units moved. If a wallet holds lots with different costs, the lots you transfer decide what basis is left behind. Record it at the time, or FIFO is assumed.
- The receiving exchange won’t know your basis. Coins transferred in are usually “noncovered” for the new broker, so its 1099-DA may show no basis for them. Your records fill the gap.
Network fees paid in crypto to make the transfer are themselves a small disposal of that crypto, and good software records them as such.
A 2026 checklist
- List every wallet and exchange account you used, including closed ones.
- Find out whether you made a safe harbor allocation in 2024 or 2025, and save the report.
- Set your tax software to wallet-by-wallet (sometimes called “per-wallet” or “per-account”) tracking for 2025 onward.
- Match all transfers between your own accounts so no transfer is treated as a sale.
- Decide your lot method for each account and record it before you sell, as a standing order in your records.
- Compare each account’s results with its 1099-DA and note any differences.
Frequently asked questions
Does wallet-by-wallet apply to self-custody wallets too?
Yes. The rule applies to every wallet or account, whether it is held at a broker or in your own custody. Brokers only report on their accounts, but the basis rule covers all of them.
Do I need to amend old returns?
Not because of this change. The wallet-by-wallet requirement applies to sales and transfers on or after January 1, 2025. Sales in 2024 and earlier are not redone, and basis already used on those sales cannot be reused.
Can I still use HIFO?
Yes, within each wallet or account, as long as you identify the units at the time of sale or through a standing order recorded in advance. What you can no longer do is reach into another wallet for a higher-cost lot. See FIFO vs HIFO for crypto for when each method saves more.
For the full filing process, see how to report crypto on your taxes.
Sources
- IRS: Revenue Procedure 2024-28 (safe harbor for allocating unused basis)
- IRS: Notice 2026-20 (extension of identification relief through 2026)
- Journal of Accountancy: Notice 2025-7 alternative identification methods
- IRS: Instructions for Form 8949
This article is for educational purposes only and is not tax, legal or investment advice. Tax rules depend on your individual situation; consult a qualified tax professional before filing.