IRS Offers Temporary Crypto Relief: Avoid Higher Taxes in 2025

IRS has announced a temporary relief measure aimed at benefiting cryptocurrency holders who use centralized finance (cefi) exchanges. This measure provides flexibility for taxpayers to manage their digital asset sales without facing immediate stricter tax obligations.

IRS Relief for Crypto Holders on Cefi Exchanges

The IRS’ new relief, shared by Shehan Chandrasekera, Head of Tax Strategy at Cointracker, addresses challenges tied to the finalized Section 6045 custodial broker regulations, set to take effect on January 1, 2025. These regulations would have required cryptocurrency holders to use FIFO (First-In, First-Out) accounting unless alternative methods like Highest-In, First-Out (HIFO) or Specific Identification (Spec ID) were supported.

Many cefi brokers were unprepared to accommodate Spec ID, potentially forcing taxpayers into FIFO and increasing their tax burdens. Under this relief, crypto holders can continue using their own records or tax software to identify specific units of digital assets sold, ensuring more control over taxable gains.

The relief applies to cefi transactions made between January 1, 2025, and December 31, 2025. After this period, taxpayers will need to formally select an accounting method with their broker.

What Crypto Holders Should Know

Chandrasekera emphasized the importance of syncing tax software with broker settings to ensure consistency in tracking tax lots. This step helps avoid discrepancies when reporting crypto transactions.

Moreover, taxpayers do not need to take immediate action to benefit from this relief. As Chandrasekera explained, the provision is automatically applied, offering a hassle-free advantage for crypto holders navigating the new regulations.

This temporary measure by the IRS underscores the importance of aligning tax strategies with evolving regulations to minimize liabilities and ensure compliance.

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