Does the IRS expect the FIFO/LIFO/HIFO methods to be applied to all the crypto assets owned by the tax subject (even those not used for trading at all), or is it applied within one exchange at the time?
the determination applies to all of your assets.that's the essential distinction between specific lot identification and all other methods like FIFO etc. the former accounts for what actually happened. the latter is sort of an arbitrary accounting of your entire portfolio.
No doubt about that. Still, in my opinion there is a different between a legal fiction of a specific order of sales that covers assets that were actually sold, and a legal fiction that covers assets that were not sold (and might never be).
Suppose the fiscal authority wants to use FIFO on all assets, and the tax subject tells them about some USB stick with X Bitcoins lying somewhere. In order to apply FIFO, they would have to take the USB stick into account, which can easily make the result rather arbitrary. This could be avoided if only those assets are taken into account that have actually been deposited on the exchange.
if you're using multiple exchanges and maintaining a separate long term stash, specific lot identification will be easier. it will probably provide the best tax benefits too.
So you could essentially mimick FIFO for every single exchange by always identifying assets bought first on the given exchange, no?Quote
Specific identification can be used as an accounting method for trading crypto assets. This means that taxpayers can select which units and lots of cryptocurrency they are selling at a given time as long as they can specifically identify them and support the cost basis of the units.
here's an example of the kind of tax benefits you can get vs FIFO: https://www.investopedia.com/articles/05/taxlots.asp
The link doesn't open (error 462). Will try again later. I understand the point, though. Still, in the case of the image, both lots are being used for trading. So, there would be a justification to take into account both of them considering they increase the economic capability of the tax subject.