A cost basis is a figure, and the question behind this search is which figure a disposal may use. The IRS FAQ read for this site defines what a basis is, names the records a taxpayer must be able to produce to attach a basis to a particular unit, and states what happens when those records are missing. None of those three sentences uses the word HIFO, and the gap between the phrase and the guidance is the useful part.
What the guidance says a basis is
Question 8 of the FAQ answers it in one sentence: “Your basis (also known as your “cost basis”) is the amount you spent to acquire the virtual currency, including fees, commissions and other acquisition costs in U.S. dollars.” The digital assets page puts the same point more briefly: “The basis of property is its cost. Generally, the basis of a digital asset is the cost in U.S. dollars.” Both sentences describe a cost attached to an acquisition, in dollars, at the time it happened. Nothing in either sentence lets a taxpayer average across a holding or pick a number that no acquisition produced.
Picking the highest-cost unit is a selection rule, and the FAQ does not name it
The phrase HIFO describes which unit a person reaches for when several are available, not a separate legal basis for the figure. In the two IRS pages read on 8 September 2026 the phrase does not appear at all, which this site records as an absence with the pages named. The mechanism the FAQ does describe is identification of the unit under question 39, and a selection rule lives on top of that mechanism rather than beside it. A figure that cannot be traced to an identified unit is not supported by anything quoted here.
The four records question 40 requires for any identified unit
Question 40 asks how a specific unit is identified, and the answer names two routes: “You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address.” It then sets what the records must contain: “This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.” Read against a highest-cost selection, the demanding item is the second: the basis and the fair market value of each unit when it was acquired, unit by unit, not as a portfolio total.
What applies when the records do not exist
Question 41 gives the consequence, and it is not a penalty: the units are treated as disposed of in acquisition order, earliest first, which the FAQ calls a first in, first out basis. Question 46 explains why the records matter beyond this one question: “The Internal Revenue Code and regulations require taxpayers to maintain records that are sufficient to establish the positions taken on tax returns.” A basis figure produced by software is a position on a return, and the record requirement attaches to the position rather than to the tool that computed it.
Questions people ask about hifo cost basis
What is the cost basis of a crypto asset in the United States?
Question 8 of the FAQ describes it as the amount spent to acquire the currency, including fees, commissions and other acquisition costs, in US dollars. The digital assets page adds that the basis of property is its cost, and that the basis of a digital asset is generally the cost in US dollars.
Can I use a highest-cost-first method?
The IRS pages read for this site do not name any such method, so nothing here says that it is named and permitted. They describe identifying a specific unit and substantiating its basis. A selection rule is applied to units that have already been identified to that standard.
What records prove which unit I sold?
Question 40 names two routes: the unit's own digital identifier, such as a private key, public key and address, or transaction records for all units of that currency held in one account, wallet or address. Those records must show acquisition date and time, basis and fair market value at acquisition, disposal date and time, and the fair market value and consideration on disposal.
Does an exchange report settle my basis?
Nothing quoted here says so. Question 46 places the record-keeping obligation on the taxpayer, to establish the positions taken on the return. The HMRC guidance read for this site makes the equivalent point about exchange reports for UK holders, in its own section on records.