Crypto tax planning for a large position is mostly recordkeeping and sequencing, and the leverage sits in decisions made before a disposition. My view is that most holders are still planning against a calendar that expired: three dates between 2024 and the end of 2026 have already fixed what they are allowed to choose.
Part of our guide: Crypto Taxes.
The short version
- Basis has been tracked wallet by wallet since 1 January 2025, so one asset can carry a different cost in two places you control.
- The safe harbor for moving old basis into wallets closed at your first 2025 sale of that asset type, and any allocation made under it is irrevocable.
- A standing order recorded in your books before the units move is the workable method for a position too large to pick over lot by lot.
- Relief for identifying units held by a broker ends on 31 December 2026, and it never covered coins you hold yourself.
- Transfers that are not sales still consume lots. A gift, a distribution, and a move to a new wallet all reorder what you can identify next.
Three dates that already narrowed your options
Treas. Reg. section 1.1012-1(j) decides which units are treated as leaving, working inside one wallet or account at a time. Three dates in that regime outrank anything available at filing.
1 January 2025. Paragraph (j) applies to acquisitions and dispositions from that date forward, carrying out the section 1012(c)(1) requirement, extended to digital assets by the Infrastructure Investment and Jobs Act, that basis conventions be applied on an account by account basis. Anyone holding one blended pool across every wallet had to split it by location, measured immediately after the close of your day on 31 December 2024.
Your first 2025 sale of each asset type. Rev. Proc. 2024-28 offered a safe harbor for allocating that unattached basis into the wallets holding the coins. A specific unit allocation had to be complete before the earlier of that first sale and the 2025 return due date with extensions. A global allocation had to be described in your books before the year began.
31 December 2026. Notice 2026-20 extended the relief in Notice 2025-7 to that date, letting you identify units in your own books instead of telling your broker. Brokers report gross proceeds on 2025 transactions and basis on certain 2026 transactions (IRS, Digital assets), so the first year a broker’s basis figure on Form 1099-DA meets yours is the year this relief expires.
The allocation nobody was told to make
Of the three, the allocation is the one I see missed most, because nothing prompted it. No form reports it, no custodian asks about it, and it lives in your own books or it does not exist. Three features decide whether yours holds up.
It runs per asset type. Bitcoin is one type of digital asset and Ether is another, so it succeeds or fails separately for each, and a family holding six assets has six of these.
It binds. Any allocation made under the revenue procedure is irrevocable for all purposes of section 1012, and section 1.1012-1(j)(4) puts a specific-identification method outside sections 446 and 481, so no accounting-method change is waiting either.
It places basis without proving it. The safe harbor governs where unused basis lands; the amount is substantiated separately under section 6001. A tidy allocation on a thin record still leaves you exposed.
The revenue procedure’s own example shows what lateness costs. A taxpayer who described an ordering rule before 1 January 2025 but had not finished the allocation by a sale on 1 March 2025 loses the specific identification, and the earliest acquired units are treated as sold.
The standing order is the practical instrument
Naming lots by hand at every trade works for a handful of dispositions a year. Above that it stops happening, and the discipline fails long before the intent does. The guidance anticipated this. For units in a broker’s custody during the relief period, Notice 2026-20 accepts:
“Recording a standing order on the taxpayer’s books and records, provided that the recorded standing order includes sufficient information to identify any digital asset units sold, disposed of, or transferred and is entered into the taxpayer’s books and records before the units covered by the order are sold, disposed of, or transferred.”
IRS, Notice 2026-20
Two conditions carry the weight: the order has to pick out units, and it has to exist before they move. One written and dated in January governs the whole year. The same words typed in March describe nothing. Paragraph (j)(2) asks the same of self-custodied holdings, where no broker exists to receive anything.
What a large position adds
Every wallet, account, and entity is a separate pool. A qualified custodian, two hardware wallets, and an LLC make four basis tables, and a lot in one cannot be identified out of another.
Moving your own coins reorders the board. Sending units between wallets you control triggers no gain, and it changes which lots sit where. Consolidating onto a new device before a large disposition can remove the lots you meant to sell.
Entities are not a second taxpayer here. Rev. Proc. 2024-28 excludes a disregarded entity from its definition of taxpayer and treats the assets it holds as held by the owner. A single-member Wyoming LLC sharpens the record while the coins keep the owner’s identity for allocation, a point worth settling before you lean on entity-level reporting or a trust’s books.
Gifts, donations, and distributions sit alongside sales here, each drawing units out of a wallet under the same ordering rules and fixing the basis and acquisition date that travel to the recipient.
What I actually see
Three patterns account for most of the damage.
The allocation nobody wrote down. The client is confident they moved to wallet-by-wallet because a product has a setting that says so. No dated record exists of what was allocated where, and the window closed at their first sale of that asset in 2025.
The standing order that postdates the trades. Someone shows me a well-drafted lot-selection policy adopted in the fall, covering a spring disposition. The policy is correct, and it governs nothing that already happened.
The consolidation nobody treated as a tax decision. Coins move to a new device for sound security reasons, two basis tables merge, and nobody mentions it because moving your own coins triggers no gain. The next sale draws from a reshaped pool.
Try this on your three largest positions before opening any software. For each, write one line: the wallet or account holding it, the units in that place, and the date and cost of the oldest lot there. Then open the software and compare. If it reports one cost for the asset across everything you own, it is still running a universal method, and every identification you believe you made since 1 January 2025 rests on a pool the regulation no longer recognizes.
Where this goes wrong
The recurring shape is a decision made in the right direction at the wrong time.
The failures worth naming: a global allocation method written into the books in February 2025, when it had to be there before the year began. An allocation done for Bitcoin and never for the four other assets in the same wallet. A standing order agreed verbally and entered nowhere. A gift booked as a transfer and never treated as an identification event, so the earliest units left. And the costliest: leaning on the broker-custody relief for coins never in a broker’s custody.
The decision rule
- Find your allocation before anything else. A missing dated record outranks any pending trade.
- Rebuild one basis table per wallet, account, and entity. No rule downstream crosses those lines.
- Check the allocation asset by asset, since it succeeds or fails separately for each type you hold.
- Write a standing order and date it, specific enough to pick out units, entered before those units move.
- Start communicating identifications to your broker, since the books-only path lapses after 2026.
- Log every self-transfer as an identification event, with the date, the sending wallet, and the lots moved.
- Treat gifts, donations, and distributions like sales for lot purposes, with substantiation in place before the transfer clears.
- Reconcile each Form 1099-DA against your own lot records, and keep the reconciliation with the return.
Where this sits
Tax planning sits downstream of custody and ownership. Custody decides which track of the identification rules you are on. Wyoming LLCs and trusts decide whose books the lots live in. Estate planning decides what happens to basis at the end, and high-net-worth families find out then whether the ledger was maintained.
These questions cross professional boundaries, and the join is where they fail. The attorney drafting the trust never sees the custodian’s lot-selection screen. The CPA preparing the return learns in March that a wallet was consolidated in October. The custodian holds no copy of the entity documents. Three capable advisors, three partial views, and the identification that goes missing is reliably the one that needed two of them looking at the same wallet on the same day.
Sources
- IRS, Digital assets
- IRS, Rev. Proc. 2024-28, basis allocation to wallets
- IRS, Notice 2026-20, extension of temporary relief
- IRS, Notice 2025-7, temporary relief
- IRS, About Form 1099-DA
- 26 U.S.C. § 1012, Basis of property, cost (Cornell LII)
- 26 CFR § 1.1012-1, Basis of property (Cornell LII)
Related
- Crypto tax reporting for LLCs
- Crypto custody for LLCs
- Can a trustee sell crypto held in a trust?
- Crypto estate data room checklist
- Can an LLC hold stablecoins?
- Crypto tax and records
Last updated: 3 August 2026. The temporary identification relief described here ends on 31 December 2026.
This article is general education, not legal, tax, or investment advice. Basis, identification, and reporting outcomes depend on your facts, your custody arrangements, and the records that existed at the time. Talk to a qualified CPA or tax attorney about your own situation.
