The United States Internal Revenue Service (IRS) has announced short-term relief by postponing a rule requiring crypto investors on centralized exchanges to use a specific accounting method.
Under the initial rule, the broker would automatically apply the First In, First Out (FIFO) method if investors did not choose their preferred accounting method, such as Specific Identification (Spec ID) or Highest In, First Out (HIFO).
FIFO assumes the oldest purchased assets are sold first, which often leads to higher capital gains taxes.
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This temporary relief allows centralized exchanges to update their systems to support various accounting methods until December 31, 2025. In the meantime, taxpayers can maintain their own records and choose methods other than FIFO.
The IRS hopes this extension will make the transition smoother for brokers and investors.
This update comes during legal challenges to IRS rules requiring brokers to report details of digital asset transactions.
A lawsuit filed by the Blockchain Association and the Texas Blockchain Council argues that these rules, which also apply to decentralized exchanges, are unconstitutional. Starting in 2027, brokers will need to report transaction details and gross proceeds to the IRS.
Shehan Chandrasekera, head of tax at CoinTracker, explained that enforcing FIFO immediately could have caused financial strain for taxpayers. Selling older assets with a lower purchase price first would unintentionally increase taxable gains, especially in a bull market.
However, Chandrasekera noted that investors now have more options to manage their taxes effectively.
As the IRS adjusts its crypto tax policies, Kyrgyzstan's tax revenue from cryptocurrency sharply declined in 2024. What happened? Read the full story.
