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Tax Accounting Method Selection (Bakkt)

  • Updated

Additional tax information here. 

Starting January 1, 2026, new IRS regulations require you to specify which Bitcoin lot(s) you are selling. This requirement applies to all Bitcoin brokers, including Bakkt, Swan's custody partner.

Swan makes this simple by letting you select your preferred Accounting Method before each sale.

Swan Mobile_Tax accounting method screenshot_1:19:26.jpg

Why am I being asked to select an Accounting Method?

In June 2025, the IRS confirmed that beginning January 1, 2026, you must tell your broker which specific Bitcoin lots you're selling — or the broker is required to use First In, First Out (FIFO) by default.

  • This isn't a Swan policy. It's federal tax law that applies to all Bitcoin brokers.
  • By selecting an Accounting Method, you're exercising your right to choose which Bitcoin you sell, rather than accepting the default.

 

What do FIFO, HIFO, and LIFO mean?

These are the three most common methods for selecting which Bitcoin to sell:

  • FIFO — First In, First Out
    • Sells your oldest Bitcoin first
  • HIFO — Highest In, First Out
    • Sells your highest-cost Bitcoin first
    • Often minimizes capital gains in rising markets
  • LIFO — Last In, First Out
    • Sells your newest Bitcoin first

Each method can have different tax implications depending on your purchase history and the current Bitcoin price.

 

Which method should I choose?

Disclaimer: Swan does not provide tax advice.

The right Accounting Method depends on your individual situation, including:

  • When you purchased your Bitcoin
  • What you paid for each purchase
  • Your overall tax strategy
  • Whether you're managing personal or business holdings

We recommend consulting a tax professional or using tax software to model different scenarios before making your selection.

 

What happens to my selection?

When you select an Accounting Method and confirm your sale:

  1. Swan stores your selection on the trade record.
  2. Swan provides your selection to Bakkt, our regulated custody partner.
  3. Bakkt applies your chosen method to determine which Bitcoin lots are sold.
  4. Bakkt reports the cost basis on your Form 1099-DA.

Your selection becomes part of your permanent trade record and cannot be changed after the sale is executed.

 

What is "covered" vs "uncovered" Bitcoin?

This is a critical distinction that affects how your Accounting Method is applied.

Covered Bitcoin

  • Bitcoin you purchased on or after January 1, 2026, and held continuously with Bakkt.
  • Your broker has complete cost basis records.
  • Your Accounting Method selection applies to these lots.

Uncovered Bitcoin

  • Bitcoin either purchased before 1/1/26 or Bitcoin purchased after 1/1/26 that was withdrawn and later redeposited
  • Your broker does not have cost basis records.
  • Your Accounting Method selection does not apply to these lots.

Note: When Bitcoin leaves custody, it becomes "uncovered" and the broker is required to null out the cost basis information. If you redeposit it later, the broker cannot track where it came from or what you paid for it.

 

How does my Accounting Method apply if I have both covered and uncovered Bitcoin?

  • Your Accounting Method (FIFO, HIFO, or LIFO) only applies to covered Bitcoin — the Bitcoin that remained in custody with Bakkt.
  • Uncovered Bitcoin follows Bakkt's lot selection policies, which may differ from your chosen Accounting Method.
  • If you've withdrawn and redeposited Bitcoin, you'll need to track the cost basis yourself using your own records or tools like CoinTracker.

 

What appears on my Form 1099-DA?

Form 1099-DA is the IRS tax form brokers use to report digital asset sales.

For Covered Bitcoin:

  • Both proceeds and cost basis are reported.
  • Your selected Accounting Method determines which lots were sold.

For Uncovered Bitcoin:

  • Only proceeds are reported.
  • No cost basis information is available from the broker.
  • You must provide your own cost basis when filing your tax return.

 

Will my selection carry over to my next sale?

Yes. To save you time, Swan will pre-select your most recent Accounting Method for future sales.

You can change this selection at any time before confirming the sale. Each sale is independent — you're free to use different methods for different sales based on your strategy.

 

Does this apply to all my Bitcoin sales?

Your Accounting Method selection applies to sales executed through Swan where the Bitcoin remained in Bakkt custody.

This applies to:

  • Bitcoin you purchased through Swan and kept in custody.
  • Bitcoin held in Swan Safe or other Bakkt custody solutions.

This does not apply to:

  • Bitcoin you've withdrawn to self-custody.
  • Bitcoin sold from Swan Vault (you control the keys).
  • Bitcoin purchased elsewhere and deposited to Swan.

For Bitcoin you control in self-custody or collaborative custody solutions like Swan Vault, you manage lot selection directly through your own records.

 

Does this apply to both individuals and businesses?

Yes. These IRS regulations apply to all non-IRA account types:

  • Individual accounts
  • Business accounts (LLCs, corporations, partnerships)
  • Trust accounts
  • IRA accounts

Businesses use an EIN instead of an SSN, but the Accounting Method selection requirements are identical.

 

What if I don't select an Accounting Method?

Starting January 1, 2026, federal law requires brokers to use FIFO if you don't provide instructions.

Swan's interface will guide you to make a selection before confirming any sale, ensuring you maintain control over which Bitcoin you're selling.

 

Where can I learn more?

Tax Planning:

  • Consult a qualified tax professional
  • Use tax software like CoinTracker to model scenarios
  • Review IRS Publication 544 (Sales and Other Dispositions of Assets)

Swan Support:

  • Contact your dedicated Swan representative (Private clients)
  • Email: support@swanbitcoin.com
  • Visit our Help Center for additional resources

Regulatory Context:

  • IRS Notice 2025-33
  • Form 1099-DA Instructions

 

The Bottom Line

This Accounting Method selection gives you control over which Bitcoin you sell and how your cost basis is calculated.

  1. Swan's role is simple: We record your choice and provide it to Bakkt so your broker can execute your instructions accurately.
  2. The actual tax reporting is handled by Bakkt and provided to you on Form 1099-DA, which you'll use when filing your tax return.

As always, Swan prioritizes transparency, regulatory compliance, and putting you in control of your Bitcoin wealth strategy.

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