What Is Specific Identification for Crypto?

Specific identification is a record naming exactly which units you disposed of, made at or before the moment of the disposition. Without one, first-in, first-out decides for you, and the oldest units in that wallet are the ones sold. My view: the part people miss is that the current relief covers only units sitting with a broker, so anyone holding their own keys is already under the strict rule.

Part of our guide: Family Office.

The short version

• The identification has to exist at or before the time of the disposition. That deadline runs with the transaction, months ahead of the return.
• FIFO applies whenever an adequate identification is missing, reaching first for the oldest units you hold in that particular wallet.
• The rules now run wallet by wallet. Treas. Reg. § 1.1012-1(j) applies specific identification or FIFO to units held within a single wallet or account, not universally across your holdings.
• Rev. Proc. 2024-28 provides a safe harbor under section 1012(c)(1) to allocate unused basis of digital assets to other digital assets held within each wallet or account as of January 1, 2025.
• Notice 2026-20 extends the temporary identification relief through December 31, 2026, only for units held in the custody of a broker. Units outside broker custody get none of it.

The identification is an act with a deadline

Every disposition needs an answer to one question: which units left. Property rules govern it. The IRS states that “For U.S. tax purposes, digital assets are considered property, not currency,” and that “The basis of property is its cost” (IRS, Digital assets). Hold thirty units acquired across four years and they carry four different costs, so the gain you report depends on which ones the transaction is treated as touching.

Specific identification is how you answer, and Treas. Reg. § 1.1012-1(j) sets out what makes an identification adequate. The consequence of saying nothing is FIFO, applied to that wallet’s own inventory.

Timing is what surprises people. A schedule assembled the following March, naming favorable lots for a September sale, is a reconstruction. The regulation asks for a record that already existed when the units moved. In my experience that requirement does more damage than the substance of the rule, because it turns a tax question into an operating habit, and habits get built before they are needed.

The wallet became the unit of account

For years many holders ran a universal pool: every unit of an asset treated as one inventory regardless of where it sat. That approach is closed. Each wallet now carries its own ordered inventory, and a sale reaches only into the inventory it was made from.

The statutory hook is short.

“In the case of the sale, exchange, or other disposition of a specified security on or after the applicable date, the conventions prescribed by regulations under this section shall be applied on an account by account basis.”

26 U.S.C. § 1012(c)(1), “Determinations by account”

Rev. Proc. 2024-28 supplied the transition off the universal method. Its safe harbor lets a taxpayer allocate unused basis to digital assets held within each wallet or account as of January 1, 2025, by specific unit allocation, which assigns named lots to named wallets, or global allocation, which spreads basis across them.

Two consequences follow. Shifting units from one of your wallets to another carries basis along with them and changes what FIFO reaches on either side. And the wallet you sell from is a basis decision in itself, made before any identification gets written, because a wallet you rarely touch can hold the oldest units you own. Every staking reward, airdrop, and fork lands in a wallet with its own acquisition date and cost, which is why staking multiplies the lots you identify against.

The relief most self-custody holders think they have

Notice 2025-7 provided temporary relief allowing additional methods of making an adequate identification within the meaning of § 1.1012-1(j)(3)(ii). Notice 2026-20 extends that relief period through December 31, 2026. The reason the IRS gives is that many custodial brokers are still building the systems needed to accept specific identification instructions.

Read the scope, because it is narrow. The relief is available only with respect to units of a digital asset held in the custody of a broker, and it does not reach units outside broker custody.

That splits the population in two. If your units sit at a custodian that will issue you a Form 1099-DA, you have an extension, and it exists because your broker’s systems are behind. If they sit on a hardware wallet or a multisig you administer, it was never addressed to you, and you are under the standard rules today with a December 2026 date on the calendar that is not yours. Qualified custody versus self-custody is usually a security question. Here it decides which rulebook applies to you this year.

In my view this is the most consequential misreading in digital asset tax right now, because the holders most likely to sit on long-appreciated self-custodied positions are the ones relying on the headline.

What I actually see

Identifications written after the fact. Somebody disposes in September, and the identifying record is created the following spring by whoever prepares the return. The lots chosen are often defensible on the merits, and the identification still fails, because the requirement is about when the record came into existence.

Portfolio software still running a universal pool. Five wallets and an exchange account roll up into one position with one blended cost, which the rules stopped supporting on January 1, 2025. The report looks tidy. It answers a question nobody is asking anymore.

Self-custody holders who read the first half of Notice 2026-20. They saw a relief period running to December 31, 2026 and filed the subject away. The custody condition sits in the same document, and it decides whether any of it reaches them.

The exercise I would run takes ten minutes and needs no software. Pick your most recent disposition from a wallet you control yourself. Find the block timestamp of that transaction, which is public and unarguable. Now find the record identifying which units left, and check when it was last written: file properties, a revision history, a message you sent yourself, a custodian confirmation. If that timestamp lands after the block timestamp, FIFO governed the sale, whatever the return says. Run it once and you will know whether you have a habit or a hope.

Where this goes wrong

The identification gets treated as a step in preparing the return, and by the time anyone examines it the units have already moved.

The specific failures: units consolidated from three wallets into one before a sale, leaving the January 1, 2025 inventories matching nothing anyone wrote down. A Rev. Proc. 2024-28 allocation performed once and never documented, so the basis in each wallet has no paper trail behind it. Standing instructions given to a custodian by phone and never confirmed in writing. Transfers between an individual and an entity holding the assets with no contemporaneous note of what moved. Tax software configured for universal pooling in a prior year and never revisited. And the ordinary one: a disposition made from whichever wallet happened to be open, with no thought for which inventory it reached into.

The decision rule

1. Determine whether each holding sits in broker custody, because that fact alone decides whether the Notice 2026-20 relief reaches you.
2. Write the identification before you broadcast the transaction or submit the order, naming acquisition date, quantity, and source wallet.
3. Treat every wallet as its own inventory, and know which units are oldest in each before choosing where to sell.
4. Locate your January 1, 2025 allocation under Rev. Proc. 2024-28 and confirm which method produced it.
5. Reconfigure any software still pooling across wallets, then check what cost it assigned per account.
6. Confirm standing identification instructions with your custodian in writing, and keep the confirmation.
7. Log every internal transfer between your own wallets with date, quantity, and source lots, since basis travels with them.
8. Ask your preparer which method produced the Form 8949 lines, and require an answer pointing at a record that predates each disposition.

Where this sits

Identification rests on decisions made much earlier, because where the units live determines which inventory a sale reaches. If an entity holds the assets, how that LLC reports determines whose return the Form 8949 lines land on, and the wallets the company controls are the inventories in play. In trusts, a trustee selling crypto makes this decision on a beneficiary’s behalf, which raises the documentation standard.

The hard part is who is present at the moment the rule applies. Nobody is. The attorney designed the entity or trust, and by implication the wallet structure, years ago. The custodian sees an instruction and an execution, and nothing about why either happened. The accountant arrives in February with whatever exported cleanly. The identification falls to whoever holds the device when the disposition happens, usually alone, without advice, and without registering it as a tax act. Crypto planning tends to fail at the joins between those three, and this join carries a timestamp, which is what makes it unrecoverable afterward.

Sources

• IRS, Notice 2026-20, extension of transition relief
• IRS, Notice 2025-7, temporary identification relief
• IRS, Revenue Procedure 2024-28, basis allocation safe harbor
• 26 U.S.C. § 1012, Basis of property (Cornell LII)
• 26 CFR § 1.1012-1, Basis of property (Cornell LII)
• IRS, Digital assets
• IRS, About Form 8949, Sales and Other Dispositions of Capital Assets

Related

• Crypto tax reporting for LLCs
• Crypto custody for LLCs
• Can a Wyoming LLC own a crypto wallet?
• Can a trustee sell crypto held in a trust?
• Crypto estate data room checklist
• Crypto tax and records

Last updated: 3 August 2026.

This article is general education, not legal, tax, or investment advice. Identification rules and the scope of current transition relief depend on where your units are held and when each record was created. Talk to a qualified CPA about your own situation.