The United States Internal Revenue Service (IRS) has introduced a temporary relief measure aimed at helping cryptocurrency holders using centralized exchanges in 2025.
Shehan Chandrasekera, Head of Tax Strategy at Cointracker, shared the news on social media platform X on December 31.
IRS Eases Crypto Tax Burden for Some Holders
The move concerns section 6045 of custodial broker regulations, which will take effect on January 1, 2025.
“The IRS just issued a temporary relief notice that is good news for crypto holders interacting with CeFi exchanges in 2025,” Shehan Chandrasekera said.
These regulations would use the First-In, First-Out (FIFO) accounting method for digital assets unless the trader chooses a preferred method, such as Highest-In, First-Out (HIFO) or Specific Identification (Spec ID). The problem here is that the FIFO method assumes that the oldest cryptocurrency bought is sold first, pushing up a taxpayer’s capital gains.
“Almost all CeFi brokers were not ready to support Spec ID as of 1/1/25. This meant that you had no option other than selling your CeFi assets under FIFO starting 1/1/25. In a bull market environment, this could have been disastrous for many taxpayers because you’d be unintentionally selling the earliest purchased asset (which tends to have the lowest cost basis) first, while unknowingly maximizing your capital gains,” Chandrasekera explained.
Now, the IRS has identified this issue and has offered a temporary solution. Taxpayers can continue using their own records or crypto tax software to identify which specific units they are selling.
“This means that if you sell assets inside a cefi broker, you can still use your books and records or crypto tax software to document which specific unit you’re selling,” Chandrasekera clarified.
However, this relief applies only to CeFi transactions between January 1, 2025, and December 31, 2025. After that, taxpayers will need to select an accounting method with their broker. If not, FIFO will most likely be selected by default.
The news comes as the IRS published new crypto tax guidelines on December 27. The regulator demanded that DeFi brokers collect and report detailed information about customers and transactions.
Since last year, the agency has ramped up its efforts to crack down on crypto tax evasion. IRS even developed an AI tool to assist with this task.
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