📣 IRS Defers Crypto Tax Rules Until 2026
posted 2 Jan 2025
On the last day of 2024, the IRS revealed a decision to delay its new cryptocurrency tax reporting regulations by a year. Originally planned for January 1, 2025, the rollout will now begin on January 1, 2026.
The new rules are designed to make it easier to determine the value of crypto assets stored on centralized exchanges (CeFi). However, when it comes to calculating taxable income, a one-size-fits-all approach doesn’t always work. In fact, these changes might have unintended consequences for the free market.
The Story Behind the Rules
In July, the IRS and U.S. Treasury unveiled new regulations for calculating and reporting the cost basis of crypto sold through brokers. If investors don’t actively choose their accounting method, the default will be “first-in, first-out” (FIFO).
Under FIFO, the oldest assets in your portfolio are considered sold first, a system that can drive up tax bills when markets are climbing.
Almost all CeFi brokers were not ready to support Spec ID [Specific Identification] as of 1/1/25. This meant that taxpayers had no option other than selling their CeFi assets under FIFO starting 1/1/25. In a bull market environment, this could have been disastrous,explained Shehan Chandrasekera, Head of Tax at CoinTracker, in a statement on X.
Temporary Tax Relief for 2025
The IRS, acknowledging the obstacles faced by brokers and taxpayers, issued Notice 2025-7 to establish a one-year transitional period. During this time, taxpayers may utilize Specific Identification (Spec ID), an accounting method that enables investors to choose which crypto assets to sell based on cost basis and acquisition date to reduce tax obligations. Strategies like “highest in, first out” (HIFO) are permitted for 2025 transactions.
Chandrasekera stressed the critical importance of this adjustment:
If you sell assets inside a CeFi broker, you can still use your books & records/crypto tax software to document which specific unit you are selling. You won’t have to be locked into FIFO as before
Shehan Chandrasekera, Head of Tax at CoinTracker. Source: shehanspeaks.com
What Taxpayers Need to Know
- Relief in 2025: The transitional relief is limited to sales on centralized exchanges made from January 1 through December 31, 2025. During this period, taxpayers have the option to manually select the crypto assets they wish to sell.
- Obligations in 2026: Beginning January 1, 2026, investors must specify an accounting method with their CeFi broker. If no method is chosen, FIFO will be applied automatically, potentially resulting in higher tax liabilities.
Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in syncChandrasekera pointed out.
- Importance of Record Keeping: Taxpayers should maintain comprehensive transaction records or use reputable crypto tax software to optimize their tax planning. Without proper documentation, FIFO will be the default method.
Impact on Cryptocurrency Investors
This postponement offers brokers the opportunity to integrate diverse accounting methods while giving taxpayers a much-needed adjustment period. While immediate measures may not be critical, experts emphasize the importance of diligently recording transactions and utilizing dependable tax software to steer clear of complications.
This relief is automatically applied to you. In short, make sure to use reputed crypto tax software or reliable books & records if you want to sell CeFi assets under HIFO, LIFO, or any form of Spec ID during 2025
The transitional period reflects the IRS’s effort to align regulatory compliance with the dynamic nature of the cryptocurrency industry. Yet, as the new rules come into force in 2026, taxpayers should remain vigilant to avoid unintended tax consequences.
