When using LIFO method to calculate cost basis for cryptocurrencies (or even stocks), does the "last in" part refer to the last purchase you made PRIOR to the sale of a cryptocurrency (or stock)? Or the last purchase made for the entire tax year?
For example, suppose I made the following transactions in 2019:
January 1st: Purchase 1 bitcoin @ $5000
March 1st: Sell 0.5 bitcoin @ $6000
December 1st: Purchase 1 bitcoin at $9000
Then using LIFO, what is the cost basis for the 0.5 bitcoin I sold in March?
Is it from the purchase I made in January (since that's the last purchase I made before the sale)?
Or is it from the purchase I made in December (since that's the absolute last purchase of the 2019 tax year)?
There's conflicting info out there.
Some people say "Well, you can't sell what you haven't bought yet." (meaning I can't use the bitcoin I purchased in December as the cost basis for the bitcoin I sold in March, since at the time of the sale, I didn't own the December bitcoin yet).
Others say "You have to look at it from the entire year point-of-view", meaning it doesn't matter that I sold in March, I can still use the December bitcoin purchase as my "last in" since it was still made in the current tax year.
Lastly, is there any documentation that spells this out anywhere?
(Before anyone asks, yes, I can specifically ID each and every crypto transaction I've ever made).
Thanks!
FIFO (the default expected by the IRS ) means that you must report as selling the earliest of your purchases. i.e. you use that acquired date and cost basis.
LIFO just means you are going in the opposite order.
There's nothing complex about it.
For stocks you can't use LIFO unless you have informed your broker that that's what you want before the sale.
For crypto, you don't get a 1099-B.
I'd suggest you stick with FIFO to avoid hassles with the IRS. Use your own judgement.
to answer your question, the date acquired must be before or on the date sold.
For stocks, additional purchase after can put you at risk of a Wash Sale. see the Wash sale rules in the IRS publication for more information.
Here is an article that has some commentary and addresses your question:
https://finance.zacks.com/determine-shares-sell-fifo-lifo-9766.html
So in your example, it is the January purchase. Also keep in mind that since this is a ST gain, ordinary income rates will apply.
FIFO (the default expected by the IRS ) means that you must report as selling the earliest of your purchases. i.e. you use that acquired date and cost basis.
LIFO just means you are going in the opposite order.
There's nothing complex about it.
For stocks you can't use LIFO unless you have informed your broker that that's what you want before the sale.
For crypto, you don't get a 1099-B.
I'd suggest you stick with FIFO to avoid hassles with the IRS. Use your own judgement.
to answer your question, the date acquired must be before or on the date sold.
For stocks, additional purchase after can put you at risk of a Wash Sale. see the Wash sale rules in the IRS publication for more information.
LIFO (or FIFO) is reporting something you bought, then sold.
purchases you haven't sold yet don't go on your tax return.
"to answer your question, the date acquired must be before or on the date sold."
Thanks! That's what I was looking for.
As an aside, adding to my confusion, I found definitions for a highest-cost-first-out (HIFO) method that let you choose the highest cost share as your cost basis regardless of the purchase date of that share.
So it didn't seem too far of a stretch to declare that for LIFO, you could choose the last purchase you made during the tax year as your "Last In", regardless of if your date of sale occurred earlier. (which in my example, would have let me use my December purchase as my cost basis for my March sale). And really, I still can't find anything concrete to contradict this.
So if what you say is true, then while indeed "LIFO just means you are going in the opposite order [of FIFO]", there apparently is also the caveat of "the date acquired must be before or on the date sold."
I'll probably stick with FIFO just to avoid any problems, but I am genuinely curious about an answer.
Thanks to everyone who replied 🙂