The Internal Revenue Service (IRS) is suspending the implementation of new tax rules that will impact investors holding crypto assets on centralized exchanges.
On July 9, 2024, the Treasury Department and the IRS published the final rules for determining the order of sale of crypto assets held on centralized financial platforms (CeFi).
Investors should choose an accounting method such as Highest-In, First-Out (HIFO) or Specific Identification (Spec ID) if their assets are held with a CeFi broker. Otherwise, First-In, First-Out (FIFO) applies, meaning the earliest acquired unit of a cryptocurrency is sold first.
The rule was supposed to go into effect on January 1, 2025, but CoinTracker Head of Tax Strategy Shehan Chandrasekera says the IRS recognized the problem that almost all CeFi brokers are not yet ready to support Spec ID, prompting the tax authorities to postpone implementation of the rule. rule by one year.
Reads the temporary relief notice issued by the IRS on December 31:
“The Treasury Department and the IRS understand that some digital asset brokers may not have the technology necessary to accept specific instructions or standing orders communicated by taxpayers on January 1, 2025. These technological limitations may prevent some taxpayers from making adequate identifications in accordance with § 1.1012-1(j)(3)(ii).”
Chandrasekera says many crypto investors could face losses if the new tax rules were enforced.
“This meant you had no choice but to sell your CeFi assets under FIFO from 1/1/25.
In a bull market environment, this could have been disastrous for many taxpayers because you would inadvertently sell the earliest asset purchased first (which usually has the lowest cost basis), while unknowingly maximizing your capital gains.”
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