IRS announces temporary crypto tax relief for 2025 investors

The Internal Revenue Service (IRS) has issued Notice 2025-7, providing temporary relief for cryptocurrency holders using centralised finance (CeFi) brokers as they navigate new tax regulations in 2025.

The relief addresses challenges arising from Section 6045 custodial broker rules, which require CeFi brokers to report cryptocurrency transactions and apply specific accounting methods.

If investors fail to select a method such as Highest In, First Out (HIFO) or Specific Identification (Spec ID), brokers will default to First In, First Out (FIFO).

This approach can increase tax liabilities by selling the earliest purchased assets with the lowest cost basis.

However, many brokers have yet to implement systems supporting Spec ID, creating complications for taxpayers.

The IRS relief allows taxpayers to bypass default FIFO rules for sales made between January 1 and December 31, 2025.

Instead, they can specify asset sales using personal records or crypto tax software, offering flexibility during this transition.

“This relief is automatic and requires no immediate action from taxpayers,” explained Shehan Chandrasekera, Head of Tax Strategy at CoinTracker.

He urged taxpayers to plan ahead and ensure their chosen accounting methods align with broker and tax software systems to avoid discrepancies.

By January 1, 2026, CeFi brokers are expected to support diverse accounting options, streamlining compliance for users who must select their preferred methods by that time.

The IRS announcement follows its introduction of a broker reporting rule under the Infrastructure Investment and Jobs Act.

This rule controversially expands broker definitions to include decentralised finance (DeFi) platforms, requiring transaction reporting despite their decentralised nature.

The rushed implementation has already faced legal challenges, with organisations like A16z Crypto and DeFi Education Fund arguing that the rule oversteps the Treasury’s authority and violates the Administrative Procedure Act.