REVISION REQUIRED FOR HIFO/SPECIFIC IDENTIFICATION SECTION:

Replace the section starting with "Under HIFO:" through the end of the "Under specific identification targeting the highest-cost lots:" paragraph with:

Under HIFO: HIFO designates the highest-cost lots first. Looking at per-unit costs: November 2021 had the highest cost at $62,000/BTC, followed by March 2021 at $55,000/BTC. Selling 0.5 BTC under HIFO means designating the November 2021 lot (0.25 BTC at $62,000/BTC, basis $15,500) and the March 2021 lot (0.25 BTC at $55,000/BTC, basis $13,750). Total basis: $29,250. Capital gain: $47,500 minus $29,250 equals $18,250. Tax at 15%: $2,737.50.

In this particular scenario, HIFO and FIFO happen to produce identical results because the two highest-cost-per-unit lots are also the oldest lots. That outcome is coincidental to this example.

Under specific identification targeting the lowest-cost lots: If the investor instead uses specific identification to deliberately select the lowest-cost lots—the June 2022 lot (0.25 BTC at $20,000/BTC, basis $5,000) and the January 2023 lot (0.25 BTC at $16,500/BTC, basis $4,125)—total basis becomes $9,125. Capital gain: $47,500 minus $9,125 equals $38,375. Tax at 15%: $5,756.25.

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The point is that specific identification gives the investor full control over which lots to sell, allowing deliberate tax optimization. However, the designation must be made before or at the time of sale, not retroactively at tax time.