The IRS announced on Wednesday that it will postpone new tax reporting requirements for cryptocurrency until 2026. This delay allows brokers involved in cryptocurrency trading to comply with new regulations regarding the cost basis for transactions on centralized platforms.
New Regulations on Cryptocurrency Taxation
In July, the IRS and the U.S. Treasury Department released new rules concerning how to identify which cryptocurrencies are sold when investors hold multiple cryptocurrencies at a brokerage, such as a centralized exchange. According to these rules, if taxpayers do not specify an accounting method, the First In, First Out (FIFO) method will be applied, meaning that the earliest acquired cryptocurrencies will be considered sold first.
This regulation was expected to take effect on January 1, 2025. However, the IRS has opted for a one-year extension to give brokers the necessary time to implement required changes. Consequently, this regulation will now become effective on January 1, 2026.
Challenges for Cryptocurrency Investors
Shehan Chandrasekera, the tax director at CoinTracker, noted that centralized finance (CeFi) platforms would struggle to comply with specific identification methods that allow users to choose which cryptocurrencies to sell. This situation will force investors to use the FIFO method, potentially leading to “catastrophic” consequences in the current bull market, according to Chandrasekera.
The FIFO method could lead investors to sell assets that typically were acquired at lower costs, resulting in higher capital gains due to their significant profits.
Additionally, the Blockchain Association, DeFi Education Fund, and Texas Blockchain Council have sued the IRS over another rule requiring some DeFi brokers to retain and report users’ personal information and transaction histories by 2027. The lawsuit aims to address the issues arising from this regulation.
