The IRS will allow crypto holders on centralized exchanges to bypass strict tax regulations in 2025, preserving flexibility in reporting and tracking digital asset sales.
IRS Announces Temporary Relief for Some Crypto Holders
The Internal Revenue Service (IRS) has issued a temporary relief measure, which is expected to benefit cryptocurrency holders using centralized finance (cefi) exchanges next year. Shehan Chandrasekera, Head of Tax Strategy at Cointracker, explained the update on social media platform X Tuesday, stating: “The IRS just issued a temporary relief notice that is good news for crypto holders interacting with cefi exchanges in 2025!”
This relief addresses concerns that stem from the finalized Section 6045 custodial broker regulations, set to take effect on Jan. 1, 2025, requiring FIFO (First-In, First-Out) accounting for digital assets unless a preferred method like Highest-In, First-Out (HIFO) or Specific Identification (Spec ID) is chosen. Chandrasekera explained the issue, highlighting that “almost all cefi brokers were not ready to support Spec ID as of 1/1/25.” This lack of readiness would have forced many crypto holders into FIFO by default, potentially triggering higher tax liabilities during asset sales. He described:
In a bull market environment, this could have been disastrous for many taxpayers because 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 IRS’ temporary relief allows taxpayers to continue using their own records or tax software to identify the specific units being 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.
The relief period applies exclusively to cefi transactions from Jan. 1, 2025, to Dec. 31, 2025. After that date, taxpayers will need to formally select an accounting method with their broker. Chandrasekera advised:
So, make sure to pick your accounting method at your cefi exchange on 1/1/26. If you don’t pick one, you will most likely default to FIFO.
He also emphasized the importance of syncing tax software with broker settings, emphasizing: “Make sure the cefi broker accounting method matches your crypto tax software tool so your tax lots are in sync.” Notably, taxpayers do not need to take any immediate action to qualify for this relief. “Just to be clear, you don’t have to take any action like filing something with the IRS today to get this relief. It’s automatically applied to you,” Chandrasekera noted.
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