Before selling Bitcoin, make sure you can connect the units you dispose of to their acquisition records, cost basis, and holding period. The steps for identifying units depend on whether they are held by a broker or in an unhosted wallet. This guide covers U.S. federal tax recordkeeping; the IRS materials cited here do not establish state, local, or non-U.S. tax treatment.
Build the records before you sell
A sale or other taxable disposition needs records that connect the Bitcoin disposed of to its acquisition history, basis, and holding period. A portfolio tracker or tax application can help organize the information, but it does not replace the underlying evidence. Keep original exchange confirmations, account statements, wallet records, and other transaction evidence alongside any consolidated ledger.
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The IRS recommends maintaining adequate records and reconciling activity across exchanges, wallets, and accounts. As a practical ledger, record the date and time, asset, quantity, transaction price or other basis evidence, fees when shown in your records, and the account or wallet involved. These are useful implementation details, not a quoted IRS checklist. IRS digital asset FAQs and IRS Fact Sheet FS-2025-06 explain the recordkeeping and reconciliation expectations.
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Keep records that connect an outgoing transfer from one exchange or wallet to the corresponding incoming transfer elsewhere. A transfer between accounts is not, by itself, a new purchase or sale, but you need enough documentation to distinguish it from one and to show which units left an unhosted wallet when relying on specific identification.
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Identify the units you are disposing of
When you dispose of only part of a Bitcoin holding, the identification rules depend on custody. The IRS distinguishes assets held in a broker’s custody from assets held in an unhosted wallet. In either case, do not wait until after the transaction to choose a favorable lot: the required identification must be made by the transaction time.
| Where the Bitcoin is held | Who records or receives the identification | Deadline and identifiers | Evidence to retain |
|---|---|---|---|
| Custodial broker account | Identify particular units to the broker using identifiers it accepts as sufficiently specific. | No later than the transaction time. After December 31, 2025, a broker standing order or instruction must be in place with the broker by that time and meet the IRS conditions. | Keep adequate substantiation for the identification and the units’ acquisition history. |
| Unhosted wallet | Identify particular units in your own books and records. | By the sale, disposition, or transfer time. Use a sufficient identifier, such as acquisition date and time or purchase price. | Keep records establishing that the identified units were removed from the wallet. |
The IRS describes these rules in its digital asset FAQs, including answers 82–92.
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Broker-held Bitcoin: follow the broker’s accepted identifiers
For units in a custodial account, identify the particular units to the broker by the time of the transaction, using identifiers the broker designates as sufficiently specific. Maintain supporting records even when the broker accepts the instruction; the instruction itself does not establish the units’ acquisition basis.
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Unhosted wallet: record the selection and removal
For Bitcoin in an unhosted wallet, make the specific identification in your books and records by the transaction time. Keep evidence that the selected units were removed. If you do not meet the IRS specific-identification standard, the default for a partial disposition is generally the earliest-acquired units of the same asset in that wallet, regardless of when those units were transferred into it.
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2025 custodial transactions have temporary relief
For 2025 transactions, IRS FAQ 84 describes temporary relief under Notice 2025-7: a taxpayer may record a sufficiently informative standing order in their own books and records before the covered units are sold, disposed of, or transferred, without communicating that order to the broker under that relief. Do not carry this exception forward to transactions after December 31, 2025; the later rules require the broker-facing identification or instruction to meet the applicable conditions.
Do not treat Form 1099-DA proceeds as your basis
Form 1099-DA can report proceeds without giving you the cost basis needed to calculate gain or loss. For sales effected in 2025, brokers generally must report gross proceeds but are not required to report basis. The IRS said most statements for 2025 transactions would not provide basis, so taxpayers and preparers need transaction records to calculate it. See the IRS fact sheet dated September 25, 2025 and the 2025 Instructions for Form 1099-DA.
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For transactions after 2025, brokers report gross proceeds. Basis reporting is mandatory for covered securities and voluntary for noncovered securities. Whether a Bitcoin lot is covered depends on acquisition and broker-custody conditions, so do not assume every lot will have broker-reported basis. The 2026 Instructions for Form 1099-DA describe these rules.
Reconcile and report the transaction
At tax time, reconcile your ledger against broker statements, including Form 1099-DA. Investigate differences rather than treating reported proceeds as a complete gain calculation. Document the basis method applied and correctly categorize any income events that affected the records.
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Individuals generally report digital-asset sales and other capital transactions on Form 8949 and summarize gains and deductible losses on Form 1040, Schedule D. The IRS describes an exception when a broker provides a Form 1099-DA that includes both gross proceeds and basis information; follow the applicable form instructions for your situation. A taxable transaction remains reportable for its transaction year even if you did not receive an information return. The IRS states: “You must report income, gain, or loss from all taxable transactions involving digital assets on your federal income tax return for the taxable year of the transaction, regardless of the amount or whether you receive a payee statement or information return.” See IRS FAQs 108–111 and Fact Sheet FS-2025-06.
Quick Recap
Tax-time checklist
- Gather acquisition confirmations and account or wallet statements from every place you used.
- Match transfers between accounts so they are not mistaken for purchases or sales.
- Confirm which units were identified by the deadline and retain evidence of the identification and, for an unhosted wallet, their removal.
- Reconcile gross proceeds with your records and calculate basis from the acquisition evidence rather than assuming Form 1099-DA supplies it.
- Report taxable dispositions for the transaction year, whether or not an information return arrived.
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