US IRS Postpones Cost-basis Tax Rule to January 2026

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As a seasoned crypto investor with a knack for navigating the ever-evolving landscape of digital assets, I find myself relieved by the recent decision made by the Internal Revenue Service (IRS) to delay the activation of new tax reporting requirements for cryptocurrencies until 2026.

Having experienced the complexities and intricacies of crypto accounting, I can attest that the prospect of being forced into an unfamiliar accounting method like FIFO would have been daunting, especially in this current bull market environment. The potential for unintended consequences on capital gains calculations was a cause for concern.

However, the one-year grace period offers brokers the opportunity to develop support for other accounting methods, providing us investors with more flexibility and control over our tax obligations. This temporary relief is indeed a breath of fresh air in an industry often characterized by its rapid pace and dynamic nature.

It’s interesting to note that this decision comes shortly after the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS, challenging the constitutionality of certain rules. It seems that persistence pays off, even in the world of crypto!

Lastly, I can’t help but share a little humor: In the world of crypto, it’s often said that the only constant is change. But now, it seems even FIFO might have its moments!

The Internal Revenue Service (IRS) in the U.S. has opted to postpone the implementation of new tax reporting rules for cryptocurrencies until 2026, shielding brokers from having to immediately adjust to these regulations and potentially sparing crypto holders on centralized exchanges from an unfamiliar accounting approach.

For individuals who have defaulted, it’s now necessary to select a tax accounting method for cryptocurrency assets that aren’t provided by traditional brokerage services. But, a recent update temporarily exempts them from this stringent rule.

IRS Finalizes Crypto Reporting Rules

Approximately six months ago, the Internal Revenue Service (IRS) and Treasury Department finalized their crypto reporting regulations. Once completed, they made these new guidelines available to the public for determining the specific cryptocurrency units that are considered sold when investors hold more than one unit in a brokerage account, such as a Centralized Cryptocurrency Exchange (CEX).

Taxpayers can choose a specific accounting technique such as Highest In, First Out (HIFO), or Spec ID for their taxes according to the rules. If they don’t specify, the Internal Revenue Service (IRS) will apply their tax liabilities using the First-In, First-Out (FIFO) method. This method determines capital gains tax by treating the earliest acquired cryptocurrency as the first to be sold, thereby potentially increasing a taxpayer’s capital gains.

Originally, I had anticipated the implementation of this rule on January 1, 2025. However, after careful consideration, it was decided to delay the enactment. Consequently, this regulation will become effective from January 1, 2026.

As per a post by CoinTracker’s Head of Tax, Shehan Chandrasekera on X, the approach encountered a real-world issue. In his view, some Centralized Finance (CeFi) brokers have demonstrated little interest in implementing the particular identification method that enables users to select which cryptocurrency units they are disposing of.

If this scenario were to occur, crypto investors would find themselves compelled to sell assets using the First In, First Out (FIFO) method starting from 2025. Chandrasekera warns that such a situation could prove detrimental in the present bull market climate. With the introduction of a one-year grace period, brokers now have the opportunity to implement support for alternative accounting methods.

3/ IRS recognized this issue and issued temporary transition relief (Notice 2025-7), today. 👏

In simpler terms, when you dispose of assets through a Centralized Finance (CeFi) broker, you can track and record the exact unit you’re selling using your financial records or crypto tax software.

You won’t have to be…

— Shehan (@TheCryptoCPA) December 31, 2024

The tax specialist noted that by accident, you might be selling the asset you bought first – typically with the smallest original cost – before others, thus inadvertently increasing your capital gains.

Another crypto commentator Mark Thomas said:

FIFO could potentially be beneficial when the date of your sale falls more than a year after the earliest cryptocurrency you purchased, yet within a year of the most recent cryptocurrency you acquired.

Industry Fight Against IRS

Significantly, this recent advancement follows the legal action initiated by the Blockchain Association and the Texas Blockchain Council towards the Internal Revenue Service (IRS).

As a researcher delving into this topic, I’ve come across two significant entities emphasizing the constitutional questionability surrounding regulations that mandate brokers to disclose digital asset transactions. They also advocate for extending these obligations to encompass decentralized exchange platforms (like DEXs), further broadening the scope of existing requirements.

Starting in the year 2027, this regulation mandates that brokers provide details about taxpayers engaging in digital asset transactions. Furthermore, they are obligated to report the total earnings from the sale of cryptocurrencies and other digital assets.

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2025-01-02 13:53