Published: February 10, 2026 | Last Updated: February 10, 2026
Per-Wallet Cost Basis 2026: The New IRS Rule That Changes Everything for Crypto Investors — Complete Migration Guide Before 1099-DA Deadline
The IRS just killed the universal wallet method. Starting January 1, 2025, you can no longer pool your crypto across multiple exchanges and wallets for cost basis calculations. Every wallet, every exchange — each one is now its own separate tax universe.
This is the single biggest crypto tax rule change in a decade. And most investors don't even know it happened.
If you hold Bitcoin on Coinbase, Kraken, and a Ledger hardware wallet, you now need to track the cost basis for each platform independently. Sell from the wrong wallet without proper identification, and the IRS defaults you to FIFO (First In, First Out) — which in a volatile market like February 2026 could mean paying taxes on phantom gains you never actually realized.
Here's what makes this urgent: Form 1099-DA arrives by February 17, 2026 — just 7 days from now. Your exchange will report your transactions to the IRS. If your records don't match what they send, you'll get an automated notice. If you haven't migrated from universal to per-wallet tracking, your cost basis is likely wrong right now.
Forbes called the 2026 filing season a "minefield" for crypto investors. This guide is your map through it.
⚡ Quick Facts
- Rule Change: Universal wallet method banned — effective January 1, 2025 (Rev. Proc. 2024-28)
- New Requirement: Per-wallet/per-exchange cost basis tracking mandatory for all crypto disposals
- Default Method: If you don't specifically identify lots, IRS applies FIFO automatically
- Safe Harbor Deadline: December 31, 2024 (already passed — but migration steps still available)
- 1099-DA Deadline: February 17, 2026 — exchanges report to IRS and you
- Cost Basis on 1099-DA: Optional for 2025 transactions; mandatory starting 2026 transactions
- Backup Withholding Risk: 24% of gross proceeds if TIN is missing or incorrect
- BTC Price Today: ~$69,000 (down 45% from $126K ATH — cost basis accuracy matters more than ever)
π Table of Contents
- Why This Rule Changes Everything
- Universal Method vs Per-Wallet: What Changed and Why
- Before & After: Same Portfolio, Different Tax Bills
- The FIFO Trap: How Default Accounting Destroys Your Tax Bill
- Step-by-Step Migration Guide (Even If You Missed the Safe Harbor)
- Crypto Tax Software Comparison for Per-Wallet Tracking
- 1099-DA Connection: What Your Exchange Reports vs What You Must Reconcile
- Common Mistakes That Will Cost You Thousands
- FAQ: 20 Critical Per-Wallet Cost Basis Questions
1️⃣ Why This Rule Changes Everything
Before 2025, crypto investors could treat all their holdings of a single asset as one big pool — regardless of which wallet or exchange held them. If you had 3 BTC on Coinbase and 2 BTC on a Ledger, you could calculate cost basis as if all 5 BTC lived in the same place. This was called the "universal method" or "universal wallet."
That's dead now.
The IRS finalized Treasury regulations in July 2024 (implemented via Revenue Procedure 2024-28) requiring that all crypto cost basis tracking be done on a per-wallet, per-account basis starting January 1, 2025. This means:
This fundamentally changes how every multi-exchange investor — and that's most of us — calculates their taxes. If your highest-cost BTC lots sit on Coinbase but you sell from Kraken, you can't use those Coinbase lots to reduce your Kraken gain. Each platform's cost basis is isolated.
Why does this matter in February 2026? Because Bitcoin just crashed 45% from $126K to $69K. Cost basis accuracy is the difference between a massive tax-loss harvesting opportunity and accidentally triggering gains. If your per-wallet basis isn't properly allocated, you could show a gain on one exchange while sitting on losses at another — and miss the deduction entirely.
2️⃣ Universal Method vs Per-Wallet: What Changed and Why
Let's get precise about what changed and why the IRS made this move.
The Old Way: Universal Method
Under the universal method, all units of the same cryptocurrency across all your wallets were treated as a single inventory pool. If you bought 1 BTC at $30K on Coinbase in 2021 and 1 BTC at $100K on Kraken in 2024, and you sold 1 BTC from Kraken, you could choose to use the $100K cost basis (Specific ID) or the $30K cost basis (FIFO) — regardless of which exchange executed the sale. The physical location of the asset didn't matter for tax purposes.
The New Way: Per-Wallet Tracking
Under per-wallet tracking, each wallet or exchange account is its own tax silo. The cost basis from Coinbase stays on Coinbase. The cost basis from Kraken stays on Kraken. If you sell from Kraken, you can only use Kraken's cost basis for that calculation. Period.
| Feature | Universal Method (Pre-2025) | Per-Wallet Method (2025+) |
|---|---|---|
| Cost basis scope | All wallets combined | Each wallet/exchange separately |
| Lot selection | Choose any lot from any wallet | Only lots within the selling wallet |
| Transfer between wallets | No cost basis impact | Cost basis travels with the asset |
| FIFO default | Applied across all holdings | Applied within each wallet only |
| Spec ID flexibility | Cross-wallet identification allowed | Only within-wallet identification |
| IRS tracking difficulty | Low (aggregated) | High (wallet-level granularity) |
| Investor record-keeping burden | Moderate | Significantly higher |
| Status | BANNED | MANDATORY |
Why the IRS Made This Change
The IRS is aligning crypto with how stocks and securities have always been reported. When you sell shares of Apple on Fidelity, you can't use cost basis from your Schwab account. The same logic now applies to crypto. This change was part of the broader push toward Form 1099-DA standardization — exchanges need to report per-account data, so investors need to track per-account data.
The secondary goal: closing the loophole where investors strategically picked the highest-cost lots from any wallet to minimize gains while selling from a different wallet with lower-cost lots. The IRS saw this as basis manipulation.
3️⃣ Before & After: Same Portfolio, Different Tax Bills
Let's run a real example to show how dramatically this changes your tax bill.
Your Portfolio
| Location | Asset | Quantity | Purchase Price | Cost Basis | Purchase Date |
|---|---|---|---|---|---|
| Coinbase | BTC | 1 | $100,000 | $100,000 | Jan 2025 |
| Kraken | BTC | 1 | $40,000 | $40,000 | Mar 2023 |
| Ledger (hardware) | BTC | 1 | $70,000 | $70,000 | Jun 2024 |
Action: You sell 1 BTC from Kraken at $69,000 (today's price).
Scenario A: Under the Old Universal Method
You could use Specific ID to choose the Coinbase lot ($100K basis) even though you're selling from Kraken. Result: $69K - $100K = -$31,000 loss. That's a $31K tax deduction.
Scenario B: Under the New Per-Wallet Method
You sell from Kraken, so you must use Kraken's cost basis. Kraken only has the $40K lot. Result: $69K - $40K = +$29,000 gain. That's $29K in taxable income.
What Should You Have Done?
If you wanted to harvest a loss, you should have sold from Coinbase (where your $100K lot is) — not Kraken. Or, before the sale, you should have transferred the Coinbase BTC to Kraken (the cost basis travels with the asset) and then sold from Kraken using the $100K basis lot.
This is why understanding per-wallet tracking isn't optional — it's the difference between a refund and a bill.
4️⃣ The FIFO Trap: How Default Accounting Destroys Your Tax Bill
Here's where most investors get burned: if you don't specifically identify which lots you're selling at the time of the transaction, the IRS automatically applies FIFO (First In, First Out) — within each wallet.
Why FIFO Is Usually the Worst Method in 2026
In a market that went from $30K (2023) to $126K (Oct 2025) and back to $69K (Feb 2026), your oldest lots typically have the lowest cost basis. FIFO sells those first, creating the largest possible taxable gain.
| Method | Which Lot Sold First | Cost Basis Used | Gain/Loss on $69K Sale | Tax Impact |
|---|---|---|---|---|
| FIFO (Default) | Oldest lot first | $40,000 (2023) | +$29,000 gain | You owe taxes |
| LIFO | Newest lot first | $100,000 (2025) | -$31,000 loss | You get a deduction |
| HIFO | Highest-cost lot first | $100,000 (2025) | -$31,000 loss | You get a deduction |
| Spec ID | You choose | Your choice | You control it | Maximum flexibility |
How to Avoid the FIFO Trap
Set your preferred accounting method (HIFO or Spec ID) in your exchange settings before executing any trades. On Coinbase, this is under Tax Settings. On Kraken, configure it in your account preferences. For DeFi and hardware wallets, use crypto tax software (CoinTracker, Koinly, TaxBit) to specify your method and maintain contemporaneous records.
If you've already traded in 2025 or 2026 without selecting a method, those transactions default to FIFO. For future transactions, set up Spec ID immediately to regain control.
5️⃣ Step-by-Step Migration Guide (Even If You Missed the Safe Harbor)
The IRS offered a one-time "safe harbor" under Rev. Proc. 2024-28, allowing investors to allocate their existing cost basis across wallets by December 31, 2024. If you did this — great. If you missed it — you're not doomed, but you need to act immediately.
If You Completed the Safe Harbor (Before Dec 31, 2024)
Your cost basis is properly allocated across wallets. Verify your allocations in your crypto tax software. You're set for 2025 and 2026 reporting. No further migration needed.
If You Missed the Safe Harbor Deadline
The IRS applies a default allocation based on the assets physically present in each wallet as of January 1, 2025. Here's what that means practically:
| Step | Action | Detail |
|---|---|---|
| 1 | Inventory all wallets/exchanges | List every platform where you held crypto as of Jan 1, 2025. Include centralized exchanges (Coinbase, Kraken, Binance US, Gemini), hardware wallets (Ledger, Trezor), software wallets (MetaMask, Phantom), and DeFi positions. |
| 2 | Record holdings per wallet | For each wallet, record the exact quantity of each crypto asset held on Jan 1, 2025. |
| 3 | Assign cost basis to each wallet | Match your historical purchase records to the assets in each wallet. If you bought 1 BTC on Coinbase and transferred it to Ledger, the cost basis from the Coinbase purchase follows it to Ledger. |
| 4 | Choose accounting method per wallet | Set HIFO, LIFO, or FIFO for each wallet. HIFO is generally most tax-efficient. Configure this in your exchange settings AND your tax software. |
| 5 | Import into crypto tax software | Import all historical transactions from every wallet into CoinTracker, Koinly, or TaxBit. The software will calculate per-wallet cost basis automatically. |
| 6 | Reconcile with 1099-DA | When your 1099-DA arrives (by Feb 17, 2026), compare your software's data with what your exchange reported. Fix discrepancies immediately. |
| 7 | Document your allocation | Save your allocation methodology in writing. If the IRS asks how you assigned cost basis, you need a clear, defensible explanation. |
6️⃣ Crypto Tax Software Comparison for Per-Wallet Tracking
You cannot do per-wallet tracking manually if you have more than one exchange and a handful of transactions. Software is not optional — it's required infrastructure.
| Feature | CoinTracker | Koinly | TaxBit |
|---|---|---|---|
| Per-wallet tracking | ✅ Full support | ✅ Full support | ✅ Full support |
| FIFO/LIFO/HIFO/Spec ID | ✅ All methods | ✅ All methods | ✅ All methods |
| 1099-DA reconciliation | ✅ Auto-import | ✅ Manual + API | ✅ Native integration |
| DeFi/DEX support | ✅ Strong | ✅ Strong | ⚠️ Limited |
| Hardware wallet tracking | ✅ Ledger, Trezor | ✅ Ledger, Trezor | ⚠️ Via CSV only |
| Tax-loss harvesting dashboard | ✅ Dedicated TLH tool | ⚠️ Basic | ⚠️ Basic |
| Form 8949 export | ✅ Direct | ✅ Direct | ✅ Direct |
| TurboTax/H&R Block integration | ✅ Both | ✅ TurboTax | ✅ TurboTax |
| Free tier limit | 25 transactions | 10,000 transactions | No free tier |
| Pricing (paid) | $59–$599/yr | $49–$279/yr | $50–$500/yr |
| Best for | Active traders, TLH focus | Multi-exchange, DeFi | Institutional, 1099-DA |
7️⃣ 1099-DA Connection: What Your Exchange Reports vs What You Must Reconcile
Your exchange must send you Form 1099-DA by February 17, 2026. This is the first year this form exists. Here's what it contains and why per-wallet tracking matters for reconciliation.
What 1099-DA Reports (2025 Tax Year)
| Field | 2025 Tax Year | 2026 Tax Year (Starting) |
|---|---|---|
| Gross proceeds | ✅ Required | ✅ Required |
| Cost basis | ⚠️ Optional | ✅ Required (for covered assets) |
| Date acquired | ⚠️ Optional | ✅ Required |
| Date sold | ✅ Required | ✅ Required |
| Short-term vs long-term | ⚠️ May not classify | ✅ Required |
| Wallet/account identifier | ✅ Per-account | ✅ Per-account |
The Reconciliation Problem
Each exchange only sees transactions on its own platform. It doesn't know about your other wallets. This creates a critical gap:
If you transferred BTC from Coinbase to Kraken and then sold on Kraken, Coinbase's 1099-DA won't show the sale. Kraken's 1099-DA will show the sale but may not have your correct cost basis (because the BTC was originally purchased on Coinbase). Your crypto tax software is the single source of truth that connects these dots.
What You Should Do Before Feb 17
Import all 2025 transactions into your crypto tax software now. When your 1099-DA arrives, compare each line item. If the exchange's cost basis doesn't match your records (common for transferred assets), your records take precedence — but you must be able to substantiate them. Flag and document every discrepancy. If you file Form 8949 with different numbers than the 1099-DA, attach a statement explaining why.
8️⃣ Common Mistakes That Will Cost You Thousands
❌ Mistake #1: Treating Wallet Transfers as Taxable Events
Moving BTC from Coinbase to your Ledger is NOT a sale. It's a transfer. But if your records don't properly track it as a transfer, your tax software may treat it as a disposal (taxable) followed by a new acquisition (resetting your cost basis and holding period). This can create phantom gains and destroy your long-term capital gains status. Fix: Tag all self-transfers as "Transfer" in your tax software. Never categorize them as "Sell" or "Send."
❌ Mistake #2: Using Universal Method After Jan 1, 2025
If your tax software is still set to "universal" tracking, every calculation it produces is wrong. Any gains/losses from 2025 forward that were calculated with universal pooling will not match what the IRS expects. Fix: Switch your software to per-wallet mode immediately. Recalculate all 2025 transactions under the new method.
❌ Mistake #3: Forgetting DeFi Wallets
Your MetaMask wallet, Uniswap LP positions, staked ETH on Lido, wrapped tokens — all of these are separate "wallets" for cost basis purposes. If you only track centralized exchanges, you're missing a significant portion of your portfolio. Fix: Connect all DeFi wallets to your tax software via public address. Include staking, LP, and wrapped token positions.
❌ Mistake #4: Not Selecting a Cost Basis Method Before Trading
If you traded in 2025 or 2026 without explicitly selecting HIFO or Spec ID, the IRS treats those transactions as FIFO. You cannot retroactively change this. Fix: For all future trades, set your preferred method NOW in both your exchange settings and your tax software. For past trades already locked into FIFO, the damage is done — plan around it.
❌ Mistake #5: Ignoring the Backup Withholding Risk
If your exchange doesn't have a valid W-9 (TIN) on file, they may withhold 24% of your gross proceeds and send it to the IRS. For crypto, this could mean the exchange liquidates a portion of your holdings to generate cash for the withholding. Fix: Log into every exchange and verify your W-9 information is current and matches your IRS records exactly.
❌ Mistake #6: Mixing Personal and Business Wallets
If you receive crypto as payment for services (freelancing, consulting) and hold it in the same wallet as personal investments, cost basis gets tangled. Income receipts have a basis equal to FMV at receipt, while personal purchases have the original buy price. Fix: Maintain separate wallets for business income and personal investment. Track each independently.
9️⃣ FAQ: 20 Critical Per-Wallet Cost Basis Questions
❓ 1. Is the per-wallet rule already in effect?
Yes. It took effect January 1, 2025. All 2025 and 2026 transactions must use per-wallet cost basis tracking. The universal method is no longer permitted.
❓ 2. What's Revenue Procedure 2024-28?
Rev. Proc. 2024-28 is the IRS guidance that eliminated the universal wallet method and provided a one-time safe harbor (through Dec 31, 2024) for investors to allocate their existing cost basis across wallets before the new rules took effect.
❓ 3. I missed the Dec 31, 2024 safe harbor. Am I penalized?
No direct penalty for missing the safe harbor. However, the IRS applies a default allocation based on where your assets physically sat on Jan 1, 2025. If your highest-cost lots ended up in wallets you rarely sell from, your tax outcomes may be less favorable. You can still organize your records — you just can't retroactively use the safe harbor allocation flexibility.
❓ 4. Does the cost basis follow when I transfer crypto between my own wallets?
Yes. When you transfer crypto between wallets you control, it's not a taxable event. The original cost basis and holding period travel with the asset. But you MUST document the transfer with date, amount, and both wallet addresses.
❓ 5. What happens if I don't choose a cost basis method?
The IRS defaults to FIFO within each wallet. In a market that rose from $30K to $126K and then crashed to $69K, FIFO often creates the largest possible gain because it sells your oldest (cheapest) lots first.
❓ 6. Can I use HIFO or LIFO?
Yes — but only under Specific Identification. You must select the method before or at the time of the transaction and maintain contemporaneous records. You cannot retroactively apply HIFO or LIFO to trades already executed under FIFO.
❓ 7. How does this affect tax-loss harvesting?
Hugely. Under per-wallet rules, you need to sell from the wallet that holds your highest-cost lots to maximize your harvestable loss. If your $100K BTC is on Coinbase and your $40K BTC is on Kraken, selling from Coinbase generates a $31K loss while selling from Kraken generates a $29K gain. Same asset, opposite outcomes.
❓ 8. Does this apply to DeFi wallets like MetaMask?
Yes. Every self-custody wallet (MetaMask, Phantom, Trust Wallet) and every DeFi position is a separate "account" for per-wallet tracking. LP tokens, staked positions, and wrapped tokens each need independent cost basis tracking.
❓ 9. What about hardware wallets (Ledger, Trezor)?
Same rule. A Ledger is treated as a separate wallet. If you transfer BTC from Coinbase to Ledger, the Coinbase cost basis moves to Ledger. When you eventually sell from Ledger (by transferring back to an exchange), you use the original cost basis.
❓ 10. How do exchanges handle this on 1099-DA?
For 2025, cost basis on 1099-DA is optional. For 2026 transactions onward, exchanges must report cost basis for "covered" assets — meaning assets acquired AND sold on the same exchange. Assets transferred in from another wallet may show unknown basis on your 1099-DA. This is where your personal records fill the gap.
❓ 11. What's a "covered" vs "uncovered" digital asset?
A "covered" asset is one where the broker has enough information to report cost basis (bought and sold on the same exchange). An "uncovered" asset is one transferred in from another wallet — the exchange may not know the original cost basis. For uncovered assets, YOU are responsible for reporting accurate cost basis on Form 8949.
❓ 12. Can I still use one cost basis method for all wallets?
You can use the same METHOD (e.g., HIFO) across all wallets, but the calculation is done independently for each wallet. Using HIFO everywhere is a consistent approach, but the lots available for each sale depend on that specific wallet's holdings.
❓ 13. What about staking rewards?
Staking rewards are taxed as ordinary income at FMV when received. They enter the wallet where they're deposited with a cost basis equal to FMV at receipt. This creates a new lot in that specific wallet, tracked separately under per-wallet rules.
❓ 14. How do airdrops work under per-wallet rules?
Airdrops received are taxed as income at FMV when you gain "dominion and control." They enter the receiving wallet with that FMV as cost basis. If you sell the airdropped tokens later, the gain/loss is calculated against that wallet's airdrop basis.
❓ 15. What if my exchange doesn't support per-wallet tracking?
Most major exchanges (Coinbase, Kraken, Gemini) now support per-account tracking natively. If your exchange doesn't, export your transaction history as CSV and import into CoinTracker or Koinly. The software handles per-wallet calculations regardless of exchange capabilities.
❓ 16. I'm a US expat. Does this apply to me?
Yes. US citizens and green card holders are subject to worldwide income tax regardless of residence. Per-wallet tracking applies to all wallets globally — including foreign exchanges like Binance International, Bybit, and OKX. These foreign wallets also need FBAR/FATCA reporting if their value exceeds $10,000.
❓ 17. Does this affect crypto ETF holders (IBIT, GBTC)?
No. Crypto ETFs are traditional securities held in brokerage accounts. They follow standard stock cost basis rules and are reported on Form 1099-B, not 1099-DA. Per-wallet rules only apply to direct crypto holdings.
❓ 18. What's the penalty for getting cost basis wrong?
If you underreport income due to incorrect cost basis, the IRS can assess a 20% accuracy-related penalty on the underpayment. In cases of willful disregard, the penalty can reach 75%. Correct reporting from the start is far cheaper than penalties and interest.
❓ 19. Can I use a spreadsheet instead of software?
Technically yes, but realistically no — not if you have more than a handful of transactions across multiple wallets. The per-wallet calculations, lot identification, holding period tracking, and Form 8949 generation are complex. A $49/year Koinly subscription will save you hours and reduce errors dramatically.
❓ 20. Where can I read the IRS guidance directly?
Rev. Proc. 2024-28 is available on IRS.gov. The final Treasury regulations on digital asset broker reporting (TD 9989) were published in July 2024. Form 1099-DA instructions are in draft form at IRS.gov/pub/irs-dft/i1099da--dft.pdf. For IRS FAQ on digital assets, visit IRS.gov/individuals/international-taxpayers/frequently-asked-questions-on-digital-asset-transactions.
π Related Articles You Must Read
This article is for informational and educational purposes only. It does not constitute legal, tax, investment, or financial advice. Per-wallet cost basis tracking involves tax decisions that should be made with professional guidance.
Key regulatory references: Revenue Procedure 2024-28 — IRS safe harbor and per-wallet transition guidance; Treasury Decision 9989 (July 2024) — Final broker reporting regulations; IRS Notice 2014-21 — Crypto classified as property; IRC Section 1012 — Cost basis determination; Form 1099-DA — Digital Asset Proceeds From Broker Transactions.
Market data sources: CoinDesk, CoinMarketCap, Reuters, Forbes (February 10, 2026). Price data: Bitcoin ~$69,000, Ethereum ~$2,000 (approximate as of publication).
⚠️ WARNING: Crypto prices are extremely volatile. Cost basis calculations depend on accurate transaction records. Software tools referenced are for informational comparison — we have no affiliate relationships. Tax rules may change. Consult a qualified CPA, EA, or tax attorney before making any tax-related decisions.
Last Updated: February 10, 2026 | Next Update: When IRS issues additional 1099-DA guidance or cost basis rule changes
π₯ Don't Let the Wrong Cost Basis Method Steal Your Tax Savings
1099-DA arrives in 7 days. Per-wallet tracking is mandatory. Set up your software. Allocate your basis. Choose HIFO. Every day you wait is a day the IRS defaults you to FIFO.
✉️ davitchh@proton.meDavit Cho — Crypto Tax Specialist & CEO at JejuPanaTek
13+ Years Experience | Patent #10-1998821 | IRS Compliance Expert
