Crypto Cost Basis: The Wallet-by-Wallet Rule for 2026

For years, plenty of crypto holders quietly treated all their coins as one big pool and picked whichever lot minimized taxes at sale. The IRS closed that door. As of 2025, cost basis has to be tracked wallet by wallet, and getting the transition right determines how much tax you owe on every future sale.

Key takeaways

• Universal cost basis is gone for digital assets; basis is now tracked per wallet or account.
• The change took effect January 1, 2025, and shapes the gain or loss on every later sale.
• Rev Proc 2024-28 offered a safe harbor to allocate existing unused basis to specific wallets.
• Taxpayers needed a documented allocation method chosen by the deadline to rely on the safe harbor.
• Notice 2026-20 extended relief allowing certain alternative identification methods with brokers.

What "universal" versus "wallet-by-wallet" means

Under the old universal approach, you could treat every unit of a coin as part of one pool regardless of where it sat, and apply a method like FIFO across the whole thing. That gave flexibility to cherry-pick which tax lot you were "selling."

Wallet-by-wallet, sometimes called per-account basis, requires you to match a sale to the specific lots held in the specific wallet or account where the sale happened. If you sell from Exchange A, you use the basis of coins actually in Exchange A, not the cheapest lot sitting in a cold wallet somewhere else.

The practical effect is less flexibility and much more bookkeeping. You now need clean records of what basis lives in each wallet.

Why the safe harbor mattered

The problem with switching from a pooled view to a per-wallet view is that everyone had years of accumulated "unused basis" sitting in a single conceptual pool. That basis had to be assigned to real wallets before the new rules took hold.

Revenue Procedure 2024-28 provided the mechanism. It let taxpayers reasonably allocate the unused basis of their digital assets to the assets held within each wallet or account as of the transition date. Two elements were essential:

• Choose an allocation method. You had to decide how to convert to wallet-by-wallet and allocate basis, and document that method.
• Meet the timing. The allocation method had to be locked in by the deadline (tied to the start of 2025) to rely on the safe harbor, even though the actual line-item allocation work could be completed later.

Miss the documentation window and you lose the clean, defensible allocation the safe harbor was designed to give you.

The methods and their trade-offs

Within the per-wallet framework you still choose an identification method for which lots you sell. The choice affects your reported gains.

Method	How it works	Typical effect
FIFO	Oldest lots sold first	Often larger gains in a rising market
Specific ID	You designate exact lots sold	Most control, most record-keeping
HIFO (via specific ID)	Highest-cost lots first	Can minimize near-term gains

Specific identification generally requires adequate records made at or before the time of sale. That documentation burden is exactly why the reporting environment tightened, and why the relief notices exist.

The 2026 relief you can use

The broker reporting regime that accompanies these changes centers on Form 1099-DA, which brokers use to report digital asset dispositions. Because brokers and taxpayers both need time to adapt, the IRS has issued temporary relief.

Notice 2026-20 extended, for an additional year, the temporary relief first provided under Notice 2025-7. In practice it allows eligible taxpayers to use certain alternative methods to make an adequate identification for units of a digital asset held in a broker's custody that are sold, disposed of, or transferred during the relief period. That gives some breathing room for specific identification when broker systems have not fully caught up.

For how the 1099-DA reporting itself works, our Form 1099-DA crypto tax reporting guide walks through what brokers report and how it lands on your return.

What to do right now

To stay on the right side of these rules:

• Confirm you have a documented allocation of pre-2025 basis to each wallet; if you relied on the safe harbor, keep that plan on file.
• Track basis per wallet going forward, not as one pool. Use software that supports per-account accounting.
• Pick an identification method deliberately (FIFO or specific ID) and keep records that support it.
• Reconcile against 1099-DA forms your brokers send, and flag mismatches early.
• Coordinate with related events like staking rewards and their taxes and wash-sale and tax-loss harvesting rules, which interact with your basis records.

Because these rules are technical and fact-specific, a crypto-literate tax professional is worth the cost if your activity is at all complex.

Frequently asked questions

What changed about crypto cost basis?

The IRS ended the universal (pooled) method. From January 1, 2025, you must track and choose a cost basis method per wallet or account rather than across your entire portfolio, which affects the gain or loss on every future sale.

What was the safe harbor for?

Revenue Procedure 2024-28 let taxpayers allocate their existing unused basis to specific wallets as of the transition date. To rely on it, you needed to choose and document an allocation method by the deadline tied to the start of 2025.

Does Notice 2026-20 change my basis method?

No. It extends temporary relief allowing certain alternative identification methods for assets held with a broker during the relief period. It is about how you identify units sold in the short term, not a new basis regime.

Which identification method should I use?

That depends on your situation and market conditions. FIFO is simplest, while specific identification gives the most control but requires records made at or before each sale. For anything complex, get professional advice rather than guessing.

This article is for general information and is not tax or financial advice.