Plain English
FIFO (first-in, first-out) sells your oldest lots first — usually the lowest-cost-basis lots in a bull market, generating the most taxable gain. LIFO sells newest first. HIFO (highest-in, first-out) sells your highest-basis lots first — minimizing gains, maximizing taxes saved.
How it actually works
The IRS defaults to FIFO if you do not specifically identify lots. Specific identification (allowing HIFO) requires contemporaneous records showing which exact units were sold. Starting in 2025, Form 1099-DA requires brokers to track basis per wallet, which makes specific-ID more administratable than ever before.
What it means for you
For HNW positions with long histories, HIFO via specific-identification can cut current-year tax substantially. The trade-off: lower future basis means higher tax when you eventually sell the older lots. The right answer depends on your overall planning — especially around step-up at death, where unrealized gain is forgiven. Coordinate this with your CPA every year, not just at tax time.
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Educational content only. Not investment, tax, or legal advice.