- The IRS postponed new crypto tax reporting rules until the start of 2026 to allow brokers time to adapt to the new regulations.
- The delay applies only to crypto sales occurring on centralized exchanges between January 1, 2025 and December 31, 2025.
- After December 31, 2025, crypto investors must pick an accounting method for assets held on centralized exchanges, aligning with the method used by the exchange.
The United States Internal Revenue Service (IRS) has issued a temporary respite for crypto tax reporting, allowing brokers more time to adapt to new regulations. This delay until the beginning of 2026 is a welcome relief for crypto holders, especially those dealing with centralized finance (CeFi) exchanges in 2025.
Delay in New Crypto Tax Reporting Rules
The IRS’ decision to postpone new crypto tax reporting rules until 2026 provides a breather for brokers who are struggling to keep up with the rapidly evolving regulations in the crypto sector. This delay, announced on Wednesday, will allow the brokers to accurately determine the cost basis for cryptos on centralized platforms.
Impact on Crypto Holders and Brokers
The impact of this delay is significant, particularly for crypto holders who interact with CeFi exchanges. This postponement applies to sales occurring within CeFi exchanges between November 25th and December 31st, 2025. After this period, crypto holders must choose an accounting method for their CeFi assets with the broker.
IRS Finalizes Custodial Broker Regulations
In July 2024, the IRS finalized custodial broker regulations, effectively determining which crypto units are sold when investors hold multiple units in a centralized exchange. This rule, initially slated to take effect on January 1, 2025, mandates that if a taxpayer has not identified a preferred accounting method, the broker will sell assets under the First-In, First-Out (FIFO) method.
Problems with the FIFO Approach
However, this FIFO approach presents a practical challenge, as many CeFi brokers were not ready to support Spec ID as of November 25th. The specific identification method (Spec ID) allows users to choose which cryptocurrency units they are disposing of. Without this approach, crypto investors are left with no choice but to sell assets under FIFO, potentially leading to disastrous outcomes in a bull market.
Crypto Tax Reporting Delay: A Grace Period for Brokers
The tax reporting delay provides a one-year grace period for brokers to develop support for other accounting methods. This move is seen as a positive step towards providing more flexibility and options for crypto investors.
Legal Challenges Against IRS Regulations
Meanwhile, the Blockchain Association, in collaboration with the Texas Blockchain Council, has mounted a legal challenge against the IRS’ latest cryptocurrency regulations. This lawsuit, announced on December 28, opposes the IRS’ new rules that require brokers to report crypto transactions.
Conclusion
As the crypto industry continues to evolve, these changes in tax reporting requirements reflect the need for adaptability and flexibility. This postponement provides an opportunity for brokers to better align their processes with the new regulations, ultimately benefiting the entire crypto ecosystem.
