The Internal Revenue Service (IRS) announced an extension of cryptocurrency tax reporting rules through 2026, providing relief to both crypto exchanges and taxpayers during the transition period.
Under Notice 2025-07, cryptocurrency holders using centralized finance (CeFi) exchanges will receive an additional year to employ various methods for calculating their gains and losses from digital asset transactions. This extension modifies the previous requirement that mandated a wallet-by-wallet approach for cost-basis determination starting January 1, 2025.
During 2025, taxpayers can continue using their personal records or tax software to identify specific units sold or transferred. The extension comes as many CeFi brokers indicated they were not prepared to support alternative accounting methods by the original 2025 deadline.
The final custodial broker regulations under Section 6045 will require brokers to use the First-In, First-Out (FIFO) accounting method unless taxpayers choose alternatives like Highest-In, First-Out or Specific Identification. Tax experts noted that defaulting to FIFO could potentially result in higher tax liabilities for crypto holders when assets are sold.
This temporary relief applies exclusively to CeFi transactions occurring between January 1 and December 31, 2025. Beginning in 2026, crypto investors must actively select an accounting method through their broker.
Additionally, the U.S. Department of the Treasury and IRS have finalized rules for decentralized finance (DeFi) brokers, requiring them to report digital asset sales proceeds via Form 1099. The Treasury Department clarified that these reporting requirements do not create new tax obligations for cryptocurrency holders.