Which Crypto Should You Sell? 2026 Lot Selection Rules and the December 31 Deadline

You can choose which crypto units you sell, but only if you identify them. If you don't, the IRS treats the oldest units in that wallet or account as sold first, which is often the choice that produces the biggest taxable gain. For 2026 you have extra flexibility: IRS Notice 2026-20 lets you make that choice in your own records through December 31, even for coins held at an exchange.

That relief has an end date, and 2026 is also the first year many exchanges report your cost basis to the IRS. Between now and year-end is the time to get the records right.

This is general education, not advice for your specific situation.

Why does lot selection matter for crypto taxes?

Most people buy crypto at different times and prices. When you sell part of a position, your gain depends on which units you're treated as selling.

Here's a hypothetical example. The prices are made up for illustration and aren't a forecast. Suppose you hold 0.75 bitcoin in one exchange account, bought in three lots, and you sell 0.25 bitcoin in November 2026 for $27,500:

Same sale, same cash, and the taxable gain ranges from $2,500 to $19,500.

Note that the lowest gain isn't automatically the best answer. Lot C is short-term because it was held one year or less, and short-term gains are taxed at ordinary income rates (IRS Topic 409). Lot B is long-term. For 2026, married couples filing jointly pay 0% on long-term gains if taxable income is $98,900 or less (Rev. Proc. 2025-32). Higher-income households may also owe the 3.8% net investment income tax above $250,000 of modified AGI for joint filers (IRS). The right lot depends on your bracket, your other gains and losses, and what you expect next year.

What are the default crypto basis rules?

Two rule changes that took effect in 2025 still catch people off guard:

• FIFO is the default. If you don't adequately identify units held at a broker, the earliest-acquired units in that account are treated as sold first. These rules apply to all digital asset acquisitions and dispositions on or after January 1, 2025 (Notice 2026-20).
• Basis is wallet by wallet. Rev. Proc. 2024-28 moved taxpayers from pooling basis across all wallets to tracking it separately for each wallet or account. The lots at your exchange and the lots in your hardware wallet are separate pools.

For more on how crypto sales, swaps and income are taxed generally, see our cryptocurrency tax and financial planning guide.

What does Notice 2026-20 allow?

The IRS originally granted this relief in Notice 2025-7 and extended it through the end of 2026. For units held at a broker and sold from January 1, 2025 through December 31, 2026, you can make an adequate identification in either of two ways (Notice 2026-20):

1. Specific identification. Before or at the time of the sale, record in your own books which units you're selling, using an identifier such as purchase date and time or purchase price.
2. A standing order. Before the sale, record a standing rule in your books, such as highest cost first, that tells you which units are sold.

If you do this, the units you identified are the ones sold for federal tax purposes, even if your broker's Form 1099-DA shows something different. If you rely on Rev. Proc. 2024-28's safe harbor for allocating older basis, you must have completed that allocation first.

The relief covers only units in a broker's custody. It doesn't apply to sales after December 31, 2026.

What does Form 1099-DA report for 2026?

For 2025 sales, brokers began issuing Form 1099-DA, and the IRS warned that most of those forms would not include basis. For 2026 the rules expand:

• Covered units: For sales after 2025, brokers must report basis for digital assets that are covered securities. Generally, those are units acquired after 2025 in a custodial account and held there until sold (IRS Form 1099-DA instructions).
• Noncovered units: Coins bought before 2026, or transferred in from another wallet or exchange, are generally noncovered, so the broker isn't required to report their basis.
• Broker's default lot order: If you don't identify lots with the broker, the broker generally reports the earliest units as sold first. The broker can use acquisition information you provide for lot selection, but not for reporting basis.

That means your 2026 Form 1099-DA may show a FIFO result while your return reports the lots you identified under Notice 2026-20. That's allowed, but you'll reconcile the difference on Form 8949 and need records to back it up. Either way, every taxpayer must report crypto gains, losses and income whether or not they receive a 1099-DA (IRS).

Can I still harvest crypto losses before year-end?

Under current law, yes. The wash sale rule in section 1091 disallows losses on "stock or securities" repurchased within 30 days before or after the sale, and it doesn't apply to cryptocurrency. Congress has introduced legislation to change that, though it wasn't expected to move before the midterm elections (CNBC).

A few cautions:

• Losses offset gains first. After that, up to $3,000 of net capital loss ($1,500 married filing separately) can offset ordinary income, and the rest carries forward (IRS Topic 409).
• Crypto ETFs are different. Shares of a spot bitcoin ETF are generally treated as securities, so plan as if the wash sale rule applies to them.
• Sale-and-repurchase is still a real transaction. Selling at a loss and buying back within minutes can draw scrutiny. Talk with your tax preparer about how you document it.

Lot selection and loss harvesting work together. Choosing high-basis lots can turn a sale into a loss, but only if you've identified those lots.

Your crypto lot-selection checklist for 2026

• List every wallet and account and confirm the remaining units and basis in each one.
• Pick your method. Choose specific identification or a standing order, such as highest cost first or tax-efficient, and write it down with a date before your next sale.
• Record every sale. Note which units each 2026 sale used: purchase date, time and price.
• Check each exchange's settings. See whether it lets you choose a lot method, because starting in 2027 the instruction generally has to go to the broker.
• Run the numbers before December 31. Compare short-term and long-term gains against your bracket, your 0% capital gains room and the 3.8% net investment income tax threshold.
• Harvest losses where they fit, keeping records of each sale and any repurchase.
• Keep your records in one place so you can reconcile your 2026 Form 1099-DA on Form 8949 in the spring.
• Add this to your year-end review with the rest of our year-end tax planning checklist.

If you have crypto spread across several exchanges and wallets, this is exactly the kind of work we do in our cryptocurrency tax and financial planning practice. Common questions are on our FAQ page, or you can schedule a consultation before year-end.