LIFO

LIFO, short for last in, first out, is an accounting convention in which the most recently acquired units are treated as the first ones sold. In inventory accounting it matches current costs against current revenues, and in investment tax accounting it means the newest tax lots are sold first, which often reduces reported gains when prices have been rising.

Why it matters

For investors who accumulated an asset across years of rising prices, the default method, first in first out, sells the oldest and cheapest lots first, maximizing the immediate taxable gain. LIFO reverses that, selling recent higher-cost lots and deferring the old low-basis coins or shares. The difference is deferral rather than escape, and LIFO can also convert what would be long-term gains into short-term ones taxed at higher rates, since the newest lots are the least seasoned, a tradeoff each seller must weigh.

Availability depends on jurisdiction and asset. US taxpayers can generally achieve LIFO-style results for securities and digital assets through specific identification with adequate records, while IRS rules effectively barred LIFO for the mutual fund average-cost method and, since 2025, require digital asset lots to be tracked wallet by wallet.

In the gold vs bitcoin debate

Lot accounting applies to both assets whenever they are sold through reporting channels, and long-term accumulators of each face the same arithmetic. The practical distinction is rate: US law taxes physical gold gains as collectibles at up to 28 percent, while bitcoin follows standard capital gains schedules. In both cases, method elections like LIFO or HIFO can matter as much as market timing.