Cost-Basis Methods
When part of a position is disposed of, the sale has to be attributed to specific lots. That choice affects your reported gain or loss and whether it's short- or long-term. TaxTrace lets you pick the method and applies it consistently across your reporting.
The methods
FIFO (First-In, First-Out)
Treats your oldest lots as sold first.
- Simple, predictable, and the default many people expect.
- Because it disposes of the oldest lots, more of your sales tend to qualify as long-term (held over a year), which is usually taxed more favorably.
- A solid default if you're not sure.
Specific Identification (SPEC_ID)
Lets you dispose of specific lots you choose, rather than strictly oldest-first.
- Most flexible: identify particular lots so reports reflect the lots you intend to dispose of.
- Requires precise per-lot records — which TaxTrace keeps for you automatically.
- Best when you need lot-level control over which basis hits each Form 8949 line.
How to choose
| If you want… | Choose |
|---|---|
| Simplicity and more long-term treatment | FIFO |
| Lot-level control over which lots are disposed | SPEC_ID |
| Not sure | FIFO (you can change later) |
You can change your method at any time from the app. TaxTrace always uses your currently selected method when it prepares reports.
Short-term vs. long-term
Regardless of method, TaxTrace classifies each disposition by how long the lot was held:
- Short-term: held one year or less.
- Long-term: held more than one year.
This classification is based on the actual on-chain acquisition and disposition dates and is carried straight through to your Form 8949 and Schedule D.
A quick note: TaxTrace supports FIFO and SPEC_ID. Reports stay consistent and defensible when one method is applied across the tax year.