As we approach the new year, it’s important for cryptocurrency investors to understand the upcoming changes to the IRS regulations regarding the tracking of gains and losses. Starting January 1, 2025, investors will need to track their cryptocurrency holdings separately for each wallet or exchange account they use. This may seem like a daunting task, but the IRS has provided “safe harbor” rules to help ease the transition.
In Revenue Procedure 2024-28, the IRS outlines the rules that provide protection for investors who properly allocate their existing crypto holdings to their various wallets. The key is to ensure that your records match your actual wallet balances as of January 1, 2025. There are two methods for making this allocation: specific unit allocation and global allocation.
Specific unit allocation involves manually assigning specific purchases to specific wallets, while global allocation allows investors to create a rule for how their crypto should be assigned to different wallets. It’s important to note that once these allocations are made, they cannot be changed without losing safe harbor protection, so careful planning is essential.
To assist investors with this transition, Bitcoin.Tax has introduced a new Safe Harbor tool. This tool allows investors to properly allocate their existing crypto holdings across their wallets while maintaining compliance with IRS regulations. The tool utilizes the 2024 Closing Report, which contains all cryptocurrency lots with their original purchase dates, costs, and locations.
Key features of the tool include direct lot editing, wallet view, asset view, multiple reallocation strategies, and CSV export. Investors can adjust their allocations by editing individual lots, splitting lots, using bulk reallocation strategies, and viewing and adjusting holdings by wallet or by cryptocurrency.
It’s important to compare final allocations with the original Closing Report to ensure accuracy, verify that allocated balances match actual wallet holdings, keep the exported Safe Harbor report for records, and understand that allocations will serve as opening balances for 2025.
By utilizing this tool, investors can ensure they meet IRS safe harbor requirements while maintaining accurate records of their cost basis across all wallets. The tool will be available through the end of 2025 to assist investors in preparing for the upcoming transition. Stay informed and proactive to ensure compliance with the new regulations.