What is FIFO?
FIFO is an acronym for a simple concept: the first assets you buy are the first assets you sell. It is the same as the milk in the grocery store, where the older cartons (first in) are always at the forefront so they can sell first (first out) to ensure that nothing expires.
These regulations specifically recommend addressing each similar crypto unit unit-by-unit and, for convenience, using the rule when specific identification is unfeasible.
Interestingly, that analysis is wallet-by-wallet: your strategy applies to all units of the same trade name in that wallet, and you generally must stick to the strategy for that wallet until you sell out that lot; at that point, you can change the approach for new units you purchase.
That wallet-by-wallet requirement is particularly important when you move coins from one wallet to another because the acquisition cost of the oldest coin determines your taxable gain. And because cryptos tend to appreciate over time, your oldest coins likely have the lowest acquisition cost, meaning that selling them can trigger the highest taxable gain.
Let's get specific.
A Concrete Example of FIFO
Say your Bitcoin buying history looks like this:
- Lot A (Jan. 2020): 0.5 BTC purchased at €7,000
- Lot B (Jan. 2021): 0.5 BTC purchased at €30,000
- Lot C (Jan. 2024: 0.5 BTC purchased at €40,000
You sell 0.5 BTC for €35,000 in June 2024.
Under FIFO, you’ll sell the coins from Lot A (Jan. 2020) first.
- Sale Price: €35,000
- Cost Basis (Lot A): €7,000
- Taxable Profit: €28,000
Instead, if you were able to sell Lot C (LIFO or specific-identification), you would realize a loss. Unfortunately, Germany’s default sequencing does not permit that unless you can provide specific identification (timestamps and traceable unit mapping). The BMF guidelines confirm this priority ordering and the unit-per-unit principle.
The One-Year Rule & The Annual Threshold
Two other laws render the FIFO strategy even more significant:
One-Year Holding Rule (§ 23 EStG)
For private assets, disposal gains are tax-free if the holding period exceeds one year. In other words, if you hold Lot A for over 12 months before sale, then those gains would be tax-free.
That’s one of the reasons why long-term holding can be a tax strategy (and why this rule can sometimes work in your favor). BMF guidance confirms that exchanges, sales, and swaps are disposals that can restart holding periods.
Annual Exemption (Freigrenze)
Starting with the 2024 tax year, Germany has raised the annual exemption for private sales (the "Freigrenze") from €600 to €1,000.
Provided your total profits on private sales in the calendar year are below €1,000, they are exempt from tax; exceed it and all of it is taxable. That new limit changes planning opportunities for thrifty crypto traders.
The Strategic Implications: How to Work With the Rule
Even though you can't escape Germany’s FIFO rule, you can plan around it by trying the following.
The Benefit of the Long-Term Holder
If your oldest coins clear the one-year hurdle, FIFO will sell those first, possibly giving you tax-free gains. That means we can make a toast to patience.
The Burden of the Active Trader
If you're buying and selling within a short time frame, this rule can draw low-cost older lots into sales, increasing your short-term taxable gains. That’s why precise tracking becomes essential.
Specific Identification (Where Possible)
The guideline allows for unit-by-unit allocation, but only if you can specifically identify the units sold.
That requires perfect timestamps and traceability (and you may have to prove it to the tax authorities). If in doubt, be prepared to justify your method with documentation.
Self-Owned Wallet-to-Wallet Transfers
It is not normally a chargeable disposal to transfer crypto from one wallet you own to another, but carefully document transfers. The admin wishes you to prove that transfers took place between accounts under your control to ensure the agency does not wrongly treat them as sales. Use exchange exports and wallet histories.
Understanding and applying principles like FIFO isn’t just about compliance — it’s about risk management, data accuracy, and audit readiness. At 8lends, we help organizations transform how they handle governance, risk, and compliance through advanced automation and integrated oversight tools.
Your FIFO Action Plan
- Do not complicate things with manual records. Manual FIFO across multiple wallets and CEXs is time-consuming, prone to error, and audit-bait.
- Use tools: that import transactions, match transfers, and apply FIFO (or transaction-specific identification, if feasible).
- Exchange wallet history exports, timestamping, and CSV downloads are all necessary. Unfortunately, you cannot escape record-keeping; detailed transaction overviews and record-keeping are a legal requirement.
- Use software to analyze "cost-basis lots" and plan sales around holding-period milestones and the €1,000 annual threshold.
Behavioral and Audit Insights
Most crypto tax guides end with the mechanics of FIFO. Yet, current academic research and legal commentary suggest there is a much larger story to tell: how individuals actually act under the rules.
An article in the 2024 European Tax Law Review estimated that over 88% of private individual investors misclassified or underreported crypto disposals in their reports. The German tax authority (Finanzverwaltung) is increasingly aware of this imbalance. Since this rule is directly about blockchain’s in-built traceability, where the oldest inputs are easy to trace back to with on-chain data, it offers tax auditors an effective tool.
The Federal Fiscal Court (BFH) has also indicated in recent statements that the predictability of this rule lowers the threshold for intent for tax evasion cases. That is: if your records do not match FIFO sequencing and you cannot prove specific identification, auditors assume you used FIFO. That reverses the burden of proof and makes "I didn't know" much harder to sustain.
Having timestamped transfer logs and using appropriate software shields you against claims of carelessness. Because the technique is so well-suited to blockchain's open audit trail, future improvements might make FIFO enforcement even more stringent.
In Conclusion
You can make wise crypto investing choices if you comprehend the wallet-by-wallet ordering, the one-year tax exemption, the higher €1,000 threshold, and the audit implications: When possible, sell tax-free lots, keep note of all transfers, and let reliable software tools simplify the otherwise tedious, time-consuming calculations. The tax code is complicated, but with well-documented paperwork and a little planning, you can take control of your portfolio and stop being at the mercy of chance.
Staying compliant in the evolving crypto regulatory landscape requires more than awareness – it takes structure, control, and the right technology. Discover how 8lends’ GRC platform can help you simplify compliance, strengthen internal oversight, and stay ahead of regulatory change.
