Hold onto your crypto hats, folks, because the IRS just dropped a tax relief bombshell for those dabbling in centralized finance (CeFi) come 2025! And guess what? You don't have to lift a finger right now!
That's right, the IRS is rolling out a temporary relief plan designed to untangle the potential tax headaches for crypto enthusiasts using CeFi brokers. This all kicks off in 2025, and it's like the IRS is saying, “Relax, we've got you covered.”
Here's the scoop: Starting January 1, 2025, new rules will require CeFi brokers to report crypto transactions and adopt specific accounting methods for selling assets. If you don't pick your preferred method—like Highest In, First Out (HIFO) or Specific Identification (Spec ID)—the brokers will automatically switch to First In, First Out (FIFO). And let's be honest, FIFO can be a bit of a tax bummer, especially when markets are booming.
The challenges didn't stop there. Many CeFi brokers weren't quite ready to handle Spec ID accounting by the 2025 deadline. But fear not! The IRS came to the rescue with Notice 2025-7, offering a lifeline for those navigating crypto sales on CeFi platforms throughout 2025. This means you can sidestep the FIFO default using your records or trusty crypto tax software to decide which assets to sell, giving you more wiggle room during this changeover.
And the best part? This relief is automatic! So, sit back and relax. But come January 1, 2026, you'll need to choose your accounting method with your broker to avoid the FIFO trap. By then, brokers are expected to be up to speed with a variety of options, making tax time a breeze.
In the meantime, it’s wise to keep your records in check or embrace reliable crypto tax software. This ensures you're reporting accurately and in sync with your chosen methods. After all, you don't want to inadvertently end up on the FIFO express!
But wait, there's more! This news follows the IRS's recent move to redefine broker reporting under the Infrastructure Investment and Jobs Act, now including decentralized finance (DeFi) platforms. This unexpected twist has sparked a legal showdown, with big names like A16z Crypto and the DeFi Education Fund challenging the rule’s validity.
So, there you have it! The IRS is shaking things up in the crypto world. Keep your eyes peeled and your records straight, as we buckle up for an exciting ride into 2025!
