HIFO, or Highest In, First Out, is a cost-basis accounting method where the coins with the highest purchase price are treated as sold first.
In crypto, HIFO can minimize your taxable gains by always selling the lots with the largest cost basis before lower-priced ones — reducing the difference between sale proceeds and cost basis.
Why HIFO Matters in Crypto
HIFO is a dynamic, tax-minimizing strategy often favored by sophisticated traders or tax-conscious investors. By selling your highest-cost assets first, you realize the smallest possible gains (or largest possible losses), helping to defer taxes and optimize cash flow. The trade-off is complexity — you must have meticulous records of each acquisition price and date.
Example
You bought:
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1 BTC @ $20,000
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1 BTC @ $30,000
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1 BTC @ $25,000
Then sold 1 BTC @ $40,000
Under HIFO:
The $30,000 coin (your highest cost basis) is considered sold first, giving you a $10,000 gain.