Hot Features
Premium
Trade smarter, not harder: Unleash your inner pro with our toolkit and live discussions.
In a groundbreaking move, the IRS has announced a relief measure that could ease the tax burden for crypto holders. Starting in 2025, individuals using centralized exchanges will have the option to bypass stringent tax regulations, offering greater flexibility in reporting and tracking digital asset transactions. This development provides a unique opportunity for crypto investors to optimize their tax strategies while staying compliant with the law. Here’s what you need to know to take full advantage of this new provision and avoid higher taxes.
IRS Introduces Temporary Crypto Tax Relief for CeFi Users
The Internal Revenue Service (IRS) has announced a temporary relief measure designed to benefit cryptocurrency holders who use centralized finance (CeFi) exchanges. Shehan Chandrasekera, the Head of Tax Strategy at CoinTracker, discussed the update on social media, highlighting its significance for crypto investors ahead of the 2025 tax year.
The relief focuses on issues arising from the finalized Section 6045 custodial broker regulations, which are set to take effect on January 1, 2025. These regulations will mandate the use of the First-In, First-Out (FIFO) accounting method for digital asset sales unless taxpayers proactively choose an alternative method, such as Highest-In,
First-Out (HIFO) or Specific Identification (Spec ID). Chandrasekera noted that most CeFi brokers were not prepared to support Spec ID by the 2025 deadline, which could have forced many investors into FIFO by default. This situation, he explained, would likely have resulted in higher tax liabilities, especially in a bull market, where selling the earliest purchased assets—often with the lowest cost basis—would maximize capital gains.
Source: create.vista.com
The temporary relief allows taxpayers to continue using their own records or tax software to identify the specific units being sold during 2025 transactions on CeFi platforms. This means investors can avoid being constrained by the default FIFO method and instead maintain flexibility in their tax strategies.
The relief applies exclusively to transactions from January 1, 2025, through December 31, 2025. After this period, taxpayers will be required to select an accounting method directly with their CeFi brokers. Chandrasekera recommended ensuring alignment between the broker’s accounting method and the settings in any tax software used to keep records consistent and compliant.
Notably, the relief is automatic, requiring no immediate action from taxpayers. Chandrasekera clarified that there is no need to file anything with the IRS to qualify for this benefit. However, he emphasized the importance of preparing for the transition in 2026 by selecting an accounting method with CeFi brokers to avoid defaulting to FIFO.
This temporary measure provides a valuable opportunity for crypto holders to optimize their tax strategies while addressing the operational challenges faced by CeFi exchanges in implementing the new rules.
Learn from market wizards: Books to take your trading to the next level
