The Internal Revenue Service (IRS) has recently issued a new notice regarding the treatment of crypto taxes in 2025, known as IRS Notice 2025-07. This notice builds upon the regulations set in 2024 and provides further guidance on how cryptocurrency transactions should be reported for tax purposes.
One key aspect of the notice pertains to broker-held assets, such as those held in exchange accounts. The IRS allows for specific lot selection if the broker offers this feature. If not, individuals can maintain their own records to identify which lots are being sold at the time of the transaction. Alternatively, individuals can establish a standing order in their records, such as always selling the highest cost basis first. If none of these options are utilized, the default method of First-In First-Out (FIFO) will apply within the broker account.
For self-held assets, like those stored in personal wallets, the notice reiterates the rules outlined in the 2024 final regulations. Individuals must adhere to either specific identification or FIFO within each wallet when reporting transactions for tax purposes.
In summary, individuals are still required to conduct wallet-by-wallet accounting, with FIFO as the default method. However, individuals have the flexibility to implement specific identification themselves when trading on an exchange.
The IRS acknowledges that exchanges may not have been fully prepared to comply with the changes in crypto taxation treatment introduced in 2024. As a result, brokers have been granted temporary relief to incorporate the capability for users to select cost basis lots in their systems throughout 2025. Additionally, taxpayers are permitted to determine the lot used in their transactions when trading through a broker, provided they can make this determination before the trade occurs.
It is important to note that this relief does not allow for a return to universal accounting practices. The rules regarding safe harbor and accounting procedures outlined in 2024 remain in effect. Individuals must still identify their lots by the end of 2024 if electing to use global allocation and complete this process by their first activity or tax return in 2025.
Overall, the notice provides individuals with greater control over the lots they are using for transactions on exchanges until 2026. While the rules for personal wallets remain unchanged, individuals can now exercise more discretion when trading through brokers.
For those who have not yet completed their safe harbor procedures, platforms like bitcoin.tax offer tools to assist in assigning cost basis lots across all accounts. These tools streamline the process of specific unit allocation and global allocation, making it easier for individuals to manage their cryptocurrency transactions for tax reporting purposes.
In conclusion, while the IRS notice introduces some changes to the treatment of crypto taxes in 2025, the fundamental principles of reporting transactions remain consistent. It is crucial for individuals to stay informed of the latest guidelines and utilize available resources to ensure compliance with tax regulations in the cryptocurrency space.