The Internal Revenue Service (IRS) has announced a temporary suspension of new tax rules that were set to impact investors holding crypto assets in centralized exchanges. This decision comes after the Treasury Department and the IRS released final rules on July 9th, 2024, regarding the order of selling crypto assets held in centralized finance (CeFi) platforms.
According to the new rules, investors with assets held in CeFi brokers were required to choose an accounting method such as Highest-In, First-Out (HIFO) or Specific Identification (Spec ID). Failure to do so would result in the default application of the First-In, First-Out (FIFO) method, where the earliest acquired unit of a cryptocurrency would be sold first.
Originally scheduled to take effect on January 1st, 2025, the IRS has decided to delay the implementation of the rule by one year. This decision was made in recognition of the fact that most CeFi brokers are not yet equipped to support the Spec ID method, which could leave taxpayers unable to comply with the identification requirements outlined in the rules.
Shehan Chandrasekera, CoinTracker’s head of Tax Strategy, emphasized the potential negative impact that the new tax rules could have on crypto investors. He highlighted the risk of unintentionally selling assets under FIFO, which could lead to higher capital gains in a bull market environment.
The IRS’s temporary relief notice, issued on December 31st, acknowledged the technology limitations faced by digital asset brokers and the challenges taxpayers may encounter in meeting the identification requirements under the new rules.
Overall, the decision to postpone the implementation of the new tax rules is aimed at providing taxpayers with more time to prepare and ensuring a smoother transition to the updated regulations. This move reflects the IRS’s commitment to addressing the concerns of crypto investors and minimizing potential losses that could result from the enforcement of the rules.
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