IRS Issues Temporary Crypto Tax Relief for 2025

Highlights:

• The IRS introduces temporary relief for crypto holders on CeFi exchanges.
• Taxpayers can use records or software to track sales until the end of this year.
• Crypto investors must choose an accounting method or default to FIFO for sales.

The United States Internal Revenue Service (IRS) has introduced a temporary relief measure to benefit crypto holders on centralized finance (CeFi) exchanges this year. Shehan Chandrasekera, Head of Tax Strategy at Cointracker, shared the update on X this Tuesday.

IRS Tax Relief Requires CeFi Crypto Investors to Select Accounting Method

The original IRS rule stated that crypto investors on CeFi brokers must choose an accounting method, like Spec ID (Specific Identification) or HIFO (Highest In, First Out). The broker will default to FIFO (First In, First Out) for reporting sales if no method is selected. FIFO, or “First In, First Out,” is the default method for calculating capital gains tax in the US. It assumes the oldest cryptocurrency purchased is sold first, which can increase capital gains.

Chandrasekera described the situation as potentially disastrous for many taxpayers in a bull market. They might accidentally sell their earliest purchased assets, which usually have the lowest cost basis. This could unintentionally maximize their capital gains.

The IRS’s temporary relief allows taxpayers to use their records or tax software to track units sold. “This means, 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,” Chandrasekera detailed. This applies only to CeFi transactions from January 1 to December 31 this year. After that, taxpayers must choose an accounting method with their brokers. Chandrasekera also highlighted the need to sync tax software with brokers.

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

This means, 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…

— Shehan (@TheCryptoCPA) December 31, 2024

Taxpayers do not need to take immediate action to qualify for this relief. Chandrasekera clarified that taxpayers do not need to file anything with the IRS today. He explained that the relief would be automatically applied to them.

In a Jan. 1 X post, Crypto commentator Mark Thomas said:

“The one time that FIFO can be good is if your sale date is more than one year after the earliest crypto you bought, but less than one year after the latest crypto you bought. FIFO, in this case, would mean long-term capital gains instead of short-term.”

Blockchain Groups Sue IRS Over New Reporting Rules for Digital Assets

The update comes shortly after the Blockchain Association and Texas Blockchain Council filed a lawsuit against the IRS on December 28. They argue that the rules requiring brokers to report digital asset transactions are unconstitutional. The lawsuit also challenges the expanded requirements to include platforms like decentralized exchanges (DEXs).

Starting in 2027, brokers will disclose information about taxpayers involved in digital asset transactions. They must also report the gross proceeds from crypto and other digital asset sales.

The following statement is attributed to @BlockchainAssn CEO @KMSmithDC following the IRS' finalization of the broker rule today: pic.twitter.com/JvlaSVaT2t

— Blockchain Association (@BlockchainAssn) December 27, 2024