The IRS has issued a temporary relief measure expected to benefit CeFi exchange users in 2025. This relief addresses concerns raised by the final version of Regulation 6045 governing custodial brokers, which will take effect on January 1, 2025, requiring the use of the first-in, first-out (FIFO) accounting method for digital assets unless alternative preferred methods such as highest-in, first-out (HIFO) or Spec ID are chosen.
Cointracker's Head of Tax Strategy, Shehan Chandrasekera, explained the issue, emphasizing that 'as of January 1, 2025, almost all CeFi brokers are not yet prepared to support Spec ID.' This lack of preparedness will force many cryptocurrency holders to default to FIFO accounting, potentially leading to a higher tax burden during asset sales. He described, 'In a bull market environment, this could be disastrous for many taxpayers, as you may inadvertently sell the assets you bought first (often with the lowest cost basis), while unknowingly maximizing your capital gains.'
The IRS's temporary relief allows taxpayers to continue using their own records or tax software to identify the specific units being sold. The relief period only applies to CeFi transactions from January 1, 2025, to December 31, 2025. After this date, taxpayers will need to formally choose an accounting method with their brokers. Chandrasekera also emphasized the importance of synchronizing tax software with broker setups. (Bitcoin.com)