Starting January 1, 2025, the IRS changed how crypto holders are required to track cost basis, moving from a universal accounting approach to wallet-by-wallet accounting. If you hold digital assets across multiple wallets or exchanges, this shift affects how you calculate gains and losses going forward.
The end of universal accounting
Previously, many holders pooled cost basis across every wallet and exchange they used. Under the new rule, you have to track gains and losses separately for each individual wallet or exchange. If you bought XRP on one platform, you can only apply that specific cost basis when you sell XRP on that same platform. Transfers between wallets no longer allow you to aggregate cost basis across them, which adds real complexity to recordkeeping that a lot of holders weren’t set up for.
The Safe Harbor Plan and FIFO defaults
To ease the transition, the IRS introduced a Safe Harbor Plan that let holders shift from universal to wallet-by-wallet accounting while staying compliant, by signing and dating an allocation method (such as highest-cost allocation) before the January 1, 2025 deadline. For anyone who didn’t establish that plan in time, First In, First Out (FIFO) became the default accounting method for crypto sales going forward. Under FIFO, unless you specify otherwise before a transaction, the IRS assumes you’re selling your oldest assets first, which can mean a larger taxable gain if your oldest holdings have the lowest cost basis.
Form 1099-DA and why cost basis reporting matters
Crypto exchanges now issue Form 1099-DA to report transaction proceeds to the IRS. That form lists sale prices, but it doesn’t necessarily include your cost basis. If your cost basis isn’t properly documented and reported on your end, the IRS may assume it’s zero, which inflates your taxable income significantly. Sell Bitcoin for $100,000 with a real cost basis of $90,000, and the actual gain is $10,000. Fail to document that cost basis, and the IRS may treat the entire $100,000 as gain.
If you’re still reconciling old transactions or aren’t confident your cost basis is properly tracked wallet by wallet, this is worth cleaning up now rather than waiting until you’re staring at a mismatched 1099-DA at filing time. Working with an advisor who specializes in crypto tax compliance is often the fastest way to get your records aligned with how the IRS now expects them to be reported.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
