Starting January 1, 2025, as defined in Revenue Procedure 2024-28 the IRS requires all US taxpayers to track their cryptocurrency cost basis on a wallet-by-wallet basis.
Currently, you can track your cost basis across all your wallets and exchanges together (known as the "universal" method). Starting January 1, 2025, you'll need to track each wallet and exchange separately, just like how stockbrokers track shares in different accounts.
The IRS understands this is a big change and has provided "safe harbor" rules to help taxpayers transition their existing holdings. These rules, outlined in Revenue Procedure 2024-28, give you protection from having your historical calculations challenged during an audit, as long as you follow the prescribed steps.
Your Options for Transitioning
The IRS provides two ways to transition your holdings: Specific Unit Allocation or Global Allocation.
Specific Unit Allocation means assigning your existing crypto holdings to specific wallets that match where they're actually held on January 1, 2025. Think of this like telling the IRS "these particular Bitcoin, bought on these specific dates at these specific prices, are in my Coinbase account." This method gives you the most control but must be completed before you make any sales in 2025.
Global Allocation allows you to apply a consistent rule across all your holdings. For example, you might assign your earliest purchased assets to one wallet and later purchases to another. This method gives you more time - until your 2025 tax return is due - but requires you to stick to one rule across all your assets.
What This Means for Your Bitcoin.Tax Account
Your 2024 tax year in Bitcoin.Tax will be crucial as it creates the foundation for this transition.
As you prepare for this transition, you'll need to:
Starting in 2025, Bitcoin.Tax will automatically switch to wallet-based tracking for US users. This means gains and losses will be calculated using only the cost basis of assets within each specific wallet or exchange account.
The Importance of Getting This Right
This transition isn't just about compliance - it affects how your gains and losses will be calculated going forward. If you have varying cost basis lots spread across different wallets, your tax situation could be significantly impacted by which assets are in which wallet when the transition happens.
Moreover, once you make your allocation decisions, they can't be changed without losing the safe harbor protection. That's why it's crucial to take time now to review your holdings and plan your approach.
Getting Started
Begin by reviewing your current holdings across all wallets and exchanges. Download your current Bitcoin.Tax Closing reports and compare them with your actual wallet balances. If you find discrepancies, now is the time to correct them. Remember, after January 1, 2025, your cost basis tracking must match your actual wallet holdings.
We'll be providing additional guidance and support throughout this transition period. Watch for updates about new features and tools to help you manage this change.