Key Takeaways
- IRS delays mandatory FIFO tax reporting for crypto until 2025.
- Investors can use alternative accounting methods like HIFO or Spec ID.
- Legal challenges contest IRS's expanded crypto tax mandates.
The IRS has granted temporary relief from stricter tax reporting rules for digital assets, delaying the mandatory use of the First In, First Out (FIFO) method for calculating capital gains until December 31, 2025.
This extension aims to alleviate investor concerns and allow brokers time to adapt to evolving tax regulations.
Impact on investors
The proposed FIFO rule, which assumes older assets are sold first, could result in higher taxable gains during price surges, significantly increasing tax liabilities for investors.
In the interim, taxpayers can continue using alternative methods such as Highest In, First Out (HIFO) or Specific Identification (Spec ID), enabling strategic asset selection to minimize tax burdens.
Shehan Chandrasekera, Cointracker’s head of tax, warned that immediate FIFO implementation would have disproportionately impacted taxpayers, triggering substantial financial consequences.
Legal challenges
The delay coincides with legal challenges to the IRS’s broader digital asset tax mandates.
On December 28, the Blockchain Association and Texas Blockchain Council filed a lawsuit contesting expanded requirements for brokers to report all crypto transactions, including those conducted on decentralized exchanges.
Critics argue these rules overreach the IRS’s authority and impose excessive burdens.
Market implications
The temporary relief signals the IRS’s acknowledgment of the complexities in crypto markets and investors’ diverse strategies.
By postponing the rule, the agency aims to balance regulatory oversight with the practical realities of the evolving digital asset ecosystem.
