IRS provides temporary relief for digital asset identification under new regulations

The Internal Revenue Service (IRS) has rolled out a temporary relief program for crypto holders using centralized exchanges. 

The relief program will run from January 1, 2025, to December 31, 2025. It will allow holders to use their records or crypto tax software tools to specify which units they are selling rather than being locked into First-In, First-Out (FIFO).

IRS allow crypto holders to avoid forced FIFO sales in 2025

The IRS instituted custodial broker regulations a few months ago, set to take effect at the start of 2025. The regulations under Section 6045 required crypto holders using CeFi brokers to specify their preferred accounting method, such as Specific Identification (Spec ID) or Highest-In, First-Out (HIFO); otherwise, their assets will be sold through FIFO.

However, by January 1, 2025, most centralized exchanges would still be unable to support Spec ID, meaning some users would have to sell their CeFi holdings exclusively using the FIFO method. Selling under FIFO meant selling the earliest purchased assets first, typically the cheapest, potentially leading to higher capital gains and increased tax bills.

To address the issue, the IRS has provided a one-year temporary relief for CeFi users, enabling them to document the specific units sold using their books and records or crypto tax tools. Therefore, holders won’t necessarily be compelled to use FIFO for 2025. Then again, no filing is required to earn the temporary extension; it applies to all users on centralized exchanges.

The Internal Revenue Service expects centralized exchanges to have established the necessary accounting methods by 2026. Thus, after December 31, 2025, users must choose their preferred accounting method, or they’ll be forced to sell under FIFO.

Forbes crypto tax analyst Shehan Chandrasekera commented, “So, make sure to pick your accounting method at your CeFi exchange on 1/1/26. If you don’t pick one, you will most likely default to FIFO. Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync.”