The IRS has shifted the timeline for the implementation of a tax rule that might inconvenience users.
To allow brokers to adapt to new regulations, the United States Internal Revenue Service (IRS) has decided to delay the activation of new tax reporting requirements for cryptocurrencies. Consequently, it will not take effect until 2026. Ordinarily, this rule would see crypto holders on Centralized Exchanges (CEXs) exposed to an accounting method they are not used to.
These defaulters must choose tax accounting methods for crypto assets unavailable on centralized brokerage platforms. However, the new development brings temporary relief from this unfavorable rule.
IRS Finalizes Crypto Reporting Rules
Six months ago, the IRS and Treasury Department put the finishing touches to new crypto reporting rules. Upon its completion, they published these new rules for determining which cryptocurrency units are sold when investors hold multiple units in a brokerage account, like a CEX.
Taxpayers may identify a preferred accounting method like Highest In, First Out (HIFO), or Spec ID as part of the tax rule. If they do not, the IRS will assess their tax obligations under the First-In, First-Out (FIFO) method. This method calculates capital gains tax by assuming the users sold the oldest cryptocurrency first. It ends up pushing up a taxpayer’s capital gains.
Initially, the plan was to take effect on January 1, 2025, but there was a rethink, causing the postponement by one year. Therefore, this rule will be effective as of January 1, 2026.
According to an X post by CoinTracker Head of Tax Shehan Chandrasekera, the approach had a practical problem. In his opinion, some Centralized Finance (CeFi) brokers have shown no enthusiasm toward supporting the specific identification method that allows users to choose which cryptocurrency units they are disposing of.
Should this have pulled through, crypto investors would have no option but to sell assets under FIFO from the start of 2025. Chandrasekera says this could have been “disastrous” in the current bull market environment. With the one-year grace period, brokers can now develop support for other accounting methods.
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
“You’d be unintentionally selling the earliest purchased asset (which tends to have the lowest cost basis) first while unknowingly maximizing your capital gains,” the tax expert wrote.
Another 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.”
Industry Fight Against IRS
Notably, this new development comes right after the Blockchain Association and the Texas Blockchain Council filed a lawsuit against the IRS.
Both entities highlighted the unconstitutional nature of the rules that require brokers to report digital asset transactions and expand existing requirements to include platforms like decentralized exchanges (DEXs).
This rule will take effect in 2027 and requires brokers to disclose information about taxpayers involved in digital asset transactions. In addition, brokers must report their gross proceeds from crypto and other digital asset sales.
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