IRS Revenue Procedure Crypto Tax Changes: Expert Guide
New IRS crypto tax rules will bring major changes for investors in 2025. In this guide, we’ll break down how IRS Revenue Procedure 2024-28 will transform crypto tax reporting, the steps you need to take to avoid penalties, and how Koinly can help streamline the transition for your crypto portfolio tracking.
What is IRS Revenue Procedure 2024-28?
Revenue Procedure 2024-28 is part of the IRS's continuous updates to tax procedures. The new rules come into effect from January 1, 2025, and require that crypto investors take action before the end of 2024.
In simple terms, IRS Rev. Proc. 2024-28 changes how crypto is tracked and reported. Taxpayers must now track and report digital asset transactions separately for each wallet and account, instead of universally tracking all assets across all accounts.
A Revenue Procedure is an official statement from the IRS that provides guidelines, rules, or instructions on how taxpayers or tax professionals should comply with specific tax laws or administrative processes. In this case, Revenue Procedure 2024-28 outlines the steps and deadlines for transitioning from the "universal wallet method" to the "wallet-by-wallet method" for reporting crypto transactions.
How IRS Rev. Proc. 2024-28 changes the way you calculate crypto taxes
Previously, many crypto users relied on universal cost tracking, although both wallet and universal tracking were permissible. The new rule, IRS Rev. Proc 2024-28, states that investors must use wallet cost tracking from 2025 onward. Key changes include:
Wallet-based cost tracking: Each wallet or account must now be treated as an independent ledger. Whether you hold assets in cold storage, on-chain wallets, or exchanges, each is tracked separately.
Safe Harbor provision: By January 1, 2025, taxpayers need to allocate their unused basis to specific wallets and accounts to qualify for safe harbor protections, shielding them from penalties for misallocation.
Accounting methods: The default accounting method remains FIFO (First In, First Out), applied wallet-by-wallet. However, taxpayers can use Specific Identification (Specific ID), which allows more control by linking specific tokens or lots to a transaction. Within Specific ID, advanced accounting methods like Highest In, First Out (HIFO), and Last In, First Out (LIFO) can be used.
Taxpayers should remember that in an audit, they must prove compliance with tax rules. Maintaining accurate records and regularly reconciling transactions and capital gains/losses is essential.
What do investors need to do about cost basis tracking?
In brief, if you were previously using a generic method like FIFO in your crypto tax software with wallet-based cost tracking off, then you’ll now be required to use the wallet-based cost tracking, effective January 1, 2025.
This means you’ll need to allocate your cost basis across your wallets for each asset and use the wallet-based cost tracking method moving forward.
Of course, this raises questions about how you should allocate cost basis across your assets going forward - and a lot of this is going to depend on how your crypto tax software handles it and the flexibility of your software.
It can be achieved using a specific unit allocation method or a global allocation method. The specific allocation method is manual. It involves an investor allocating the units of unused basis to either a pool of remaining digital assets within a single account or specific units within a single account. It’s more accurate, but it takes a lot more manual work.
The global allocation method sets a general rule for using the units of unused basis and allocates the units to a pool of remaining digital assets. It’s less accurate, but it’s going to be easier for a lot more investors.
Read next: What is Cost Basis?
What is the IRS Safe Harbor crypto provision?
With Rev. Proc. 2024-28, the IRS is offering taxpayers a safe harbor provision during the transition from universal to wallet cost tracking.
There is a catch though, you have until December 31 to implement it.
What it does
Prior to the new guidance, the IRS let investors use universal tracking. This method assumes all your assets are held in a universal wallet or account, even if they were (more likely) across many exchanges and wallets. For example, when you disposed of an asset on one exchange, the underlying cost of that asset could have been derived from a purchase that you made on a completely different exchange.
The new regulations change all this to force investors to track assets per wallet. The universal method is no longer permissible.
Why it matters
Given the complications that may come with the new regulations, the IRS is providing transition relief through a safe harbor provision. So for taxpayers who previously used the universal method, the IRS allows investors to make a reasonable allocation of units of unused basis to a wallet, provided that the wallet holds the same number of remaining assets and the unused basis units are the same type of digital asset as the remaining digital assets.
What’s the deadline for the change?
The safe harbor protection is only available to taxpayers who hold remaining digital asset units and have units of unused basis as of January 1, 2025.
The guidance from the IRS states the taxpayer may not apply the safe harbor from Rev Proc 24-28 to any digital assets acquired by or transferred to the taxpayer on or after January 1, 2025. The new rules apply to new assets after this date.
Under the guidance, in order to benefit from the safe harbor protection, users must have a ‘record’ of migrating from universal to wallet-based cost tracking using a global allocation method prior to January 1, 2025.
Koinly makes it easy with automated tools to track wallets, allocate unused basis, and keep you IRS-ready. Don’t miss this opportunity to transition smoothly and avoid penalties.
How to prepare for new IRS crypto tax rules
Consolidate wallets: Combine smaller balances and organize accounts with clear purposes to simplify reporting.
Allocate cost basis: Assign the original purchase price and acquisition date for each asset by wallet before January 2025.
Seek expert help: Engage a CPA or tax advisor to reconcile past filings, ensure compliance, and avoid audit risks.
Plan year-end taxes: Harvest tax losses, make estimated tax payments, and consider charitable donations for potential tax savings.
How to handle 2025 IRS cost basis changes in Koinly
We’re working on updates to our software for US users who are currently using universal tracking. Koinly is implementing a single (global) allocation method for all users which will allow you to easily migrate from universal to wallet-based tracking without impacting past returns which will go live in December 2024.
Learn more in help guide on migrating to wallet-based cost basis tracking.
FAQs
Why did the IRS introduce Rev. Proc. 2024-23?
The IRS is working to address the growing complexities of crypto tax compliance. Since designating crypto as “property” for tax purposes in 2014, the agency’s approach has been incremental. Rev. Proc. 2024-23 is the latest effort to close gaps in reporting clarity and provide a more structured framework for tracking and taxing digital assets.
What are the new reporting requirements for brokers?
This new rule complements another change to crypto tax rules introduced by the IRS, namely Rev. Proc. 2024-28. This rule specifically addresses digital asset cost basis tracking. Starting in 2025 brokers must issue Form 1099-DA, to theoretically make it easier for taxpayers to report crypto gains and losses.
Read next: What is Form 1099-DA?
What are the other key changes from Rev. Proc. 24-28?
Form 1099-DA reporting will be required starting in 2025 for transactions that occur after 2024. The form covers information on gross proceeds from sales, similar to traditional 1099 forms for securities, but specifically designed for crypto. We have dedicated guides on both Form 1099-DA and previous crypto 1099 forms.
What does Rev Proc 24-28 mean for crypto investors and businesses?
Broker responsibilities: Starting in 2025, brokers must provide taxpayers with Form 1099-DA, reporting transaction details like cost basis and proceeds from sales. This form is crucial because it will reduce discrepancies between what the IRS knows about a taxpayer's transactions and what the taxpayer reports, helping avoid penalties or audits. Investors in theory will start receiving these in 2026, but some exchanges - like Coinbase - are already asking for more time to put processes in place to achieve this.
Investors' cost basis obligations: Investors must ensure they track their acquisition costs and dates of digital assets accurately. Rev. Proc. 2024-28 introduces rules for basis allocation, which allows taxpayers to allocate basis between different units of digital assets held in their accounts before 2025. This can help investors accurately report gains or losses when they sell or trade their assets in future years. Importantly, once an allocation is made under the safe harbor, it is irrevocable.
Overall, the IRS's push for stricter crypto tax compliance is intended to streamline reporting and improve accuracy, but it also places new burdens on both brokers and investors to ensure they are keeping detailed and accurate records of all digital asset transactions.
Read next: USA Crypto Tax Guide
