The United States Internal Revenue Service (IRS) has introduced a temporary relief measure aimed at helping cryptocurrency holders use 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 cryptocurrency tax burden for certain holders
This decision concerns section 6045 of the Depository Broker Regulations, which will come into force on January 1, 2025.
“The IRS just issued a temporary relief notice, which is good news for crypto holders interacting with CeFi exchanges in 2025,” said Shehan Chandrasekera.
These regulations would use the first-in, first-out (FIFO) accounting method for digital assets, unless the merchant chooses a preferred method, such as the highest-in, first-out (HIFO) method or specific identification ( Spec ID). The problem here is that the FIFO method assumes that the oldest cryptocurrency purchased is sold first, increasing the taxpayer’s capital gains.
“Almost all CeFi brokers were not ready to support Spec ID as of 1/1/25. This meant you had no choice but to sell your CeFi assets under FIFO starting 1/1/25. In a bull market environment, this could have been disastrous for many taxpayers, as you would unwittingly sell the first asset purchased (which tends to have the lowest cost) first, while unknowingly maximizing your capital gains “, explained Chandrasekera.
Now the IRS has identified this problem and is offering a temporary solution. Taxpayers can continue to use their own records or crypto tax software to identify the specific units they are selling.
“This means that if you are selling assets within a cefi broker, you can still use your books and records or crypto software to document the specific unit you are selling,” Chandrasekera clarified.
However, this relief only applies to CeFi transactions between January 1, 2025 and December 31, 2025. After this date, taxpayers will need to choose an accounting method with their broker. Otherwise, FIFO will most likely be selected by default.
The news comes as the IRS released new cryptocurrency tax guidance on December 27. The regulator required DeFi brokers to collect and report detailed customer and transaction information.
Since last year, the agency has stepped up its efforts to combat crypto tax evasion. The IRS has even developed an AI tool to help you with this task.
Disclaimer
In accordance with the Trust Project guidelines, BeInCrypto is committed to providing unbiased and transparent reporting. This news article aims to provide accurate and current information. Readers are, however, advised to independently verify the facts and seek professional advice before making any decision based on this content. Please note that our Terms and Conditions, Privacy Policy and Disclaimer have been updated.
