The Internal Revenue Service (IRS) has announced a temporary relief measure that will allow cryptocurrency holders on centralized exchanges to bypass strict tax regulations in 2025. This change is intended to provide flexibility in reporting and tracking digital asset sales.
As of January 1, 2025, the IRS had implemented new rules requiring First-In, First-Out (FIFO) accounting for digital assets unless a preferred method like Highest-In, First-Out (HIFO) or Specific Identification (Spec ID) was chosen. However, many centralized finance (cefi) exchanges were not ready to support Spec ID by this date.
The IRS’ temporary relief allows taxpayers to continue using their own records or tax software to identify the specific units being sold. This means that users can still use their books and records or crypto tax software to document which specific unit they are selling, even if it’s through a cefi broker.
The relief period applies exclusively to cefi transactions from January 1, 2025, to December 31, 2025. After that date, taxpayers will need to formally select an accounting method with their broker. It is essential to pick the correct accounting method on January 1, 2026, or default to FIFO if not selected.
Taxpayers do not need to take any immediate action to qualify for this relief. The change is automatically applied to users who meet the criteria.
Source: https://news.bitcoin.com/irs-issues-crypto-relief-heres-how-to-avoid-higher-taxes-in-2025