This rarely used tax loophole is helping some bitcoin holders lower their tax bill

This rarely used tax loophole is helping some bitcoin holders lower their tax bill

Is down around 36% from its all-time high in November, but the dip has a good side, thanks to a quirk in the tax code that helps crypto holders shield their winnings from the IRS. The IRS treats cryptocurrencies like property, meaning that anytime you spend, exchange, or sell your tokens, you're logging a taxable event. There's always a difference between how much you paid for your crypto, which is the cost basis, and the market value at the time you spend it. That difference can trigger capital gains taxes. But a little-known accounting method known as HIFO — short for highest in, first out — can significantly slash an investor's tax obligation. When you sell your crypto, you can pick and choose the specific unit you are selling. That means a crypto holder can pick out the most expensive bitcoin they bought and use that number to determine their tax obligation. A higher cost basis translates to less tax on your sale. But the onus is on the user to keep track, so thorough bookkeeping is essential. Without detailed records of a taxpayer's transaction and cost basis, calculations to the IRS can't be substantiated. "People rarely use it because