IRS Rev. Proc. 2024-28 is a dense, 24-page document, but here’s what you really need to know:
FIFO is Your New Standard for 2025
Starting with the 2025 tax year, you’ll need to use the First-In-First-Out (FIFO) method for crypto transactions. The only exception is if you use specific identification before any disposition, meaning you must specify which units you’re selling before making the trade.
Account-by-Account Cost Basis Becomes Mandatory
Universal cost basis methods are out; account-by-account cost basis methods are the new norm. If you’ve been using a universal method—which is likely if you’ve been reconciling crypto transactions—it’s time to switch. Here’s the difference:
- Universal Cost Basis: Treats all assets of the same type as one large pool, regardless of where they are held.
- Account-by-Account Cost Basis: Assets are tracked separately based on the account they are held in, creating multiple “stacks” of assets.
For example, in a universal system, all your ETH is considered one big pile, no matter where it’s stored. With an account-by-account system, ETH is divided into different “stacks” for each account, and when you sell, it pulls from the specific account stack.
What Are Your Options?
If you’re not already using an account-by-account method, the IRS offers three ways to transition:
- Consolidate all your assets into a single account by December 31, 2024. This approach is likely the simplest for most taxpayers, as it converts universal lots into account-specific lots by having everything in one account.
- Sell all your crypto positions by December 31, 2024. While this method is straightforward, it may be challenging depending on your portfolio’s current state.
- Safe Harbor under Specific Identification Allocation (Rev. Proc. 2024-28) – Complete by January 1, 2025.
- Safe Harbor under Global Allocation (Rev. Proc. 2024-28) – Also complete by January 1, 2025.
- Full Dataset Reconciliation using an account-by-account method—anytime, but more work.
Options 1 and 2 are the simplest and most straightforward choices.
Options 3 and 4 are also easy and eliminate the need for full reconciliation but must be completed by January 1, 2025.
Option 5 depends on your situation: it works well if you have a few accounts with minimal activity, but if you have numerous accounts and high activity, it’s best to avoid it if possible.
What You Need to Do
For option 1, move all of your assets into one exchange or one DeFi wallet by December 31, 2024.
For option 2, sell all of your assets by December 31, 2024.
For options 3 and 4, take a snapshot of your crypto data before January 1, 2025. Use the provided template and demo data as a guide. Afterward, reconcile your dataset up to the snapshot date, and you’ll be ready to safely transition to the new cost basis method.
For options 5, reconcile your full dataset prior to when your taxes are due. For most taxpayers, this will be April 15, 2025.
Act Now to Avoid Extra Work
If you miss these deadlines, you may need to retroactively reconcile all your past transactions using the new account-by-account method. Save yourself the hassle—act now and be prepared!
If you have read all of this and are feeling overwhelmed reach out! We have capacity for a few more clients before year’s end.
