IRS Announces Temporary Relief for Crypto Holders Using Centralized Exchanges in 2025

The Internal Revenue Service (IRS) has announced a temporary relief program for cryptocurrency holders using centralized exchanges.

The program will run from January 1, 2025, to December 31, 2025, allowing holders to specify which units they are selling using their own records or crypto tax software tools, instead of being limited to the First-In, First-Out (FIFO) method.

A few months ago, the IRS implemented custodial broker regulations, which are set to take effect at the beginning of 2025.

Under Section 6045, these regulations require cryptocurrency holders using centralized finance (CeFi) brokers to select their preferred accounting method, such as Specific Identification (Spec ID) or Highest-In, First-Out (HIFO). If holders do not make a selection, their assets will automatically be sold using FIFO.

However, as of January 1, 2025, most centralized exchanges are expected to lack the functionality to support Spec ID. This limitation would force some users to sell their holdings exclusively under FIFO. Selling under FIFO means selling the earliest purchased assets first, which are often the cheapest, potentially resulting in higher capital gains and, consequently, increased tax liabilities.

To address this challenge, the IRS has introduced a one-year temporary relief measure for CeFi users. This relief allows holders to document the specific units sold using their own records or crypto tax software tools, ensuring they are not compelled to use FIFO during 2025.

The relief applies automatically to all users on centralized exchanges; no additional filing is necessary to benefit from this extension.

The IRS anticipates that centralized exchanges will be equipped with the necessary accounting methods by 2026. After the relief period ends on December 31, 2025, users must select their preferred accounting method. If no method is chosen, they will be required to sell their assets using the FIFO method.

Forbes crypto tax analyst Shehan Chandrasekera emphasized the importance of planning for this transition: “So, make sure to pick your accounting method at your CeFi exchange on 1/1/26. If you don’t pick one, you will most likely default to FIFO. Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync.”