HIFO

HIFO, short for highest in, first out, is a cost basis accounting method in which the units sold are assumed to be the ones purchased at the highest price. Selling the most expensive lots first minimizes the reported capital gain. An investor who bought bitcoin at 30,000 and 60,000 dollars and sells at 70,000 reports a 10,000 dollar gain under HIFO rather than 40,000.

Why it matters

For assets accumulated over many purchases at wildly different prices, the accounting method can change a tax bill more than the timing of the sale. HIFO defers gains by realizing the smallest profit available today, leaving low-cost lots to be sold later, ideally at long-term rates or never. US rules have generally allowed specific identification of lots for both securities and digital assets, which HIFO operationalizes, provided records adequately identify which units were sold, and IRS requirements around wallet-level tracking have tightened since 2025.

The method is not free money, it is deferral. Selling high-cost lots first leaves a portfolio of low-basis holdings whose embedded gains eventually come due, unless held until death or donated under current US law.

In the gold vs bitcoin debate

Tax lot strategy applies to both assets, but with a wrinkle: US law treats physical gold as a collectible, taxed at a maximum long-term rate of 28 percent, while bitcoin is property taxed at standard capital gains rates topping out at 20 percent. For frequent accumulators of either asset, disciplined lot tracking and methods like HIFO often matter as much as the choice between the two.