The IRS has delayed applying the “First In, First Out” (FIFO) accounting approach to capital gains on centralized exchanges, providing temporary respite for crypto investors. This extension gives investors and brokers breathing room to adjust to regulatory changes.
The FIFO tax computation approach prioritizes the sale of the oldest bitcoin purchase. While simple, this strategy can considerably boost taxable gains during a bull market. Investors may mistakenly sell assets for the lowest acquisition price, resulting in a greater tax liability. Critics had cautioned that if adopted immediately, this measure would place undue financial demand on taxpayers.
The IRS’s deferral allows investors to continue utilizing alternative procedures such as “Highest In, First Out” (HIFO) and Specific Identification (Spec ID) until December 31, 2025. These strategies provide additional flexibility by allowing investors to select which assets to sell, potentially reducing capital gains taxes.
This delay also gives brokers more time to adapt their systems to support different accounting solutions. Many in the cryptocurrency ecosystem see this as a step toward a more fair and deliberate regulatory framework.
The statement coincides with legal challenges to the IRS’s larger reporting requirements for digital asset transactions. Industry groups have expressed concerns about the expanding requirements that require brokers to record gross revenues and taxpayer information for all cryptocurrency transactions, including those conducted on decentralized exchanges. Courts are contesting these new requirements, set to take effect in 2027, for potentially exceeding the agency’s authority.
By delaying the FIFO rule and taking into account the complexity of the cryptocurrency market, the IRS appears to be responding to investor input while maintaining regulatory oversight. Many view the temporary relief as a positive step, providing crypto participants with time to get ready for impending changes.
