New IRS Crypto Tax Rules: What You Need to Know for 2025

New IRS Crypto Tax Rules: What You Need to Know for 2025

The IRS is ramping up efforts to improve tax compliance for digital assets like cryptocurrency.

Starting January 1, 2025, crypto brokers will be required to file tax forms (~Form 1099-DA~) to report the sale of digital assets on behalf of their customers.

This change means that both brokers and crypto investors need to adjust their reporting methods.

One of the biggest changes is in how you will calculate their cost basis (the original value of an asset).

Here’s a breakdown of what you need to know to stay compliant:

Old Method: Universal Tracking

Previously, the IRS allowed a simplified “universal” method for tracking cost basis.

This method lets taxpayers treat their digital assets as if they were in a single “pool” or account, regardless of where they were actually held.

For example, if you held crypto across multiple exchanges and wallets, you could calculate the cost basis from any of those assets, even if they weren’t in the account where you made the sale.

Taxpayers often used First-In-First-Out (FIFO) or Specific ID methods with this pooled basis to calculate gains and losses.

New Requirement: Wallet-by-Wallet Tracking

Starting in 2025, the IRS will require taxpayers to use a “wallet-by-wallet” tracking method, which means that cost basis must be calculated separately for each wallet or account.

For instance, if you sell 2 ETH from a specific wallet, you must calculate gains or losses based on the earliest purchases of ETH in that same wallet, rather than from your entire collection of ETH across all accounts.

Transitioning to Wallet-by-Wallet Tracking

The IRS recognizes that this change requires time and adjustments. To help with the switch, they’re offering transitional relief through IRS Rev. Proc. 2024-28.

Taxpayers have until January 1, 2025, to reasonably allocate their existing cost basis across assets in each wallet.

You have two options for making this allocation:

1. Global Allocation: You can distribute the cost basis evenly across all assets you hold.
2. Specific Unit Allocation: You can assign the basis to particular assets within each wallet or account. Some taxpayers may prefer this option to strategically assign basis values to certain assets.

Once you make these allocations, they can’t be changed, so it’s essential to choose carefully.

Accurate record-keeping will be crucial to ensure compliance.

When You Sell a Digital Asset

Going forward, every sale of a digital asset must follow the wallet-by-wallet tracking rule.

When you sell, you’ll need to either:

• Identify the specific asset sold (e.g., based on the unique ID or date purchased) or
• Use FIFO (selling the oldest assets first) as the default method if you haven’t specified an asset.

How to Prepare

If you hold digital assets, here’s how to prepare for the new rules:

• Assess Your Current Method: Determine if you’re currently using the universal method and if adjustments are needed to comply with the new wallet-by-wallet tracking. If you have been using Moonscape, we will be able to assist you during the transitional period.
• Consult with Professionals or Software Providers: Consulting with a crypto tax professional can also be a smart move as the new rules take effect. If you use crypto tax software, check if it supports wallet-by-wallet tracking and basis allocation. Moonscape will be supporting this new method very soon, so stay tuned and reach out to us if you have any questions!

With the January 1, 2025, deadline approaching, getting a head start on organizing your records and understanding the new requirements will save you time and potential issues.

Additional Resources

For more details, consult the IRS guidance directly:

• ~IRS Rev. Proc. 2024-28~

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