HIFO is a cost basis method that treats the most expensive units you hold as the ones sold first, which minimizes gain in the current year, and it is only allowed if you specifically identify the units with records at the time of sale.
HIFO is a form of specific identification, not a standalone method the IRS names. It works when your wallet-level records show acquisition dates and costs and the identification is made no later than the sale. Software that applies HIFO retroactively without those records does not meet the standard.
Why it matters: HIFO defers tax rather than eliminating it, because the low-basis units remain and will be sold eventually, possibly at a short-term rate. See specific identification.
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