New IRS Crypto Rules: Stricter Reporting, But a Temporary Safe Harbor Offers Relief!

The Internal Revenue Service (IRS) has rolled out new crypto tax reporting rules to increase transparency and ensure compliance in the rapidly growing digital asset market. Starting January 1, 2025, cryptocurrency investors will be required to follow stricter identification and reporting guidelines. However, the IRS has introduced a temporary safe harbor provision to ease the transition for taxpayers in 2025.

If you own, trade, or invest in Bitcoin, Ethereum, or other cryptocurrencies, these changes will significantly impact how you report gains, losses, and tax liabilities. Below, we break down what you need to know about the new IRS crypto rules, how the safe harbor can help, and what steps you should take to stay compliant.

New IRS Crypto Rules

The IRS is tightening its grip on cryptocurrency tax reporting, requiring investors to track their assets on a per-wallet basis. While the new rules take full effect in 2026, 2025 offers a temporary safe harbor to help taxpayers adjust.

Key Takeaway:

Start organizing your crypto records now to avoid future headaches. Use tax software, separate wallets, and consult an expert to stay compliant and maximize your tax efficiency

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New IRS Crypto Rules: What’s Changing? Understanding the Stricter Reporting Requirements

Under the new IRS rules, taxpayers must track their digital assets on a per-wallet or per-account basis. This means you can’t simply lump all your crypto transactions together—you must keep detailed records for each wallet and account separately.

What This Means for Crypto Investors

1. Previously, many investors used FIFO (First-In-First-Out) or LIFO (Last-In-First-Out) methods across all wallets.
2. Now, the IRS requires a specific identification method to report individual transactions based on their unique acquisition and sale details.
3. Each buy and sell transaction must be tracked individually to determine gains, losses, and tax liability.

Example: How This Affects Crypto Taxes

Before:

1. You bought 1 Bitcoin (BTC) in 2022 at $20,000 in Wallet A.
2. You bought another 1 BTC in 2023 at $40,000 in Wallet B.
3. You sold 1 BTC in 2024.
4. Under the old rule, you could select FIFO or LIFO across all wallets.

Now:

1. You must track whether the sold Bitcoin came from Wallet A or Wallet B and report accordingly.
2. If the sold Bitcoin came from Wallet A, your taxable gain is based on the $20,000 purchase price.
3. If it came from Wallet B, the gain calculation changes.

Bottom Line: Keeping detailed records of each crypto purchase and sale will be mandatory to comply with IRS requirements.

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New IRS Crypto Rules Temporary Safe Harbor: Relief for 2025 Tax Year

The IRS recognizes the difficulty of transitioning to this new system, so they have introduced Revenue Procedure 2024-28, which allows taxpayers to temporarily allocate basis across multiple wallets or accounts.

What Does the Safe Harbor Allow?

1. Crypto holders can apply unused basis across multiple wallets or accounts.
2. Taxpayers have more flexibility in 2025 while adjusting to the new rules.
3. Brokers may not have full tracking systems in place until 2026, so individuals can rely on their own records for tax reporting in 2025.

How to Qualify for the Safe Harbor

To take advantage of this temporary relief, you must:

1. Ensure your crypto assets qualify as capital assets (i.e., held for investment purposes).
2. Use the safe harbor consistently across all accounts.
3. Maintain clear and detailed transaction records (dates, costs, and transfers).
4. Understand that once you apply the safe harbor, you cannot change your tax filing method later.

Important: This provision only applies to the 2025 tax year and is meant to help taxpayers adjust before the full rules take effect in 2026.

New IRS Crypto Rules: What Happens in 2026? The IRS Will Require Even Stricter Compliance

By January 1, 2026, the IRS expects crypto brokers to have systems in place that allow for detailed tracking of digital asset transactions. This means:

1. Brokers must support specific identification methods for all crypto transactions.
2. All taxpayers will be required to track their assets at the individual wallet level.
3. The temporary relief options from 2025 will no longer be available.

Time to prepare! The earlier you start organizing your records, the smoother your tax reporting will be.

How to Prepare for New IRS Crypto Rules (Action Plan)

Start Tracking Your Crypto Transactions Now

1. Use crypto tax software like CoinTracker, Koinly, or CoinLedger to keep records.
2. Maintain a spreadsheet of all transactions, including:
   • Purchase date
   • Amount bought
   • Price at purchase
   • Wallet or exchange used
   • Sale or transfer date

Separate Your Wallets for Easier Reporting

1. Consider using dedicated wallets for different types of trades (long-term vs. short-term holdings).
2. This will simplify tracking and compliance in 2025 and beyond.

Consult a Tax Professional

1. Speak with a crypto tax expert to ensure full compliance with the IRS rules.
2. Stay updated on IRS guidance and any additional changes before 2026.

Utilize the 2025 Safe Harbo: If your crypto records are not well organized yet, use the safe harbor as a temporary buffer year to get everything in order.

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New IRS Crypto Rules (FAQs)