Complying with the IRS’s New Crypto Cost Basis Rules (Rev. Proc 2024-28)

The IRS is requiring all U.S. crypto investors to switch from the Universal cost basis tracking method to the Per-Wallet method by January 1, 2025. 

Let’s talk about what this change means for your crypto taxes, and how CoinLedger can help. 

What is Rev. Proc. 2024-28?

Rev. Proc. 2024-28 is the IRS’s latest guidance for crypto investors, outlining new cost basis tracking requirements that will go into place for tax year 2025.

What’s changing with cost basis tracking? 

Previously, taxpayers were allowed to “combine” the cost basis for all coins across multiple wallets. Starting in the 2025 tax year, you must track each wallet’s cost basis separately. 

For example, imagine the following scenario. 

Under the universal cost basis tracking method, Saul could calculate his capital gains using methods like FIFO (First In, First Out) as if his assets were co-mingled within a single wallet. Let’s see how Saul would’ve calculated his gains in this scenario. 

How does the Per-Wallet method change tax calculations? 

Starting in 2025, Saul must calculate the cost basis separately for each wallet. While methods like FIFO still apply — they now only apply to each specific wallet rather than all assets. 

This shows how the new rules can impact your tax calculations, making it essential to track the cost basis for each wallet individually.

Why is the IRS changing cost basis tracking? 

Starting in the 2025 tax year, individual cryptocurrency brokers will be required to issue Form 1099-DA to users outlining all capital gains and losses. 

Because individual brokers can only see the transactions you made on that specific platform, Form 1099-DA will only show the cost basis of the cryptocurrency you acquired with that specific broker. 

It’s likely that the IRS is requiring per-wallet cost basis tracking to try to avoid discrepancies between what crypto investors report on their tax returns and the data reported by brokers on Form 1099-DA. It’s also part of a broader effort to prevent tax evasion and ensure that crypto investors are paying taxes on their capital gains — no matter where their assets are held. 

Why do these cost basis changes matter for me? 

The new IRS rules means that you’ll need to track your cost basis for each coin in each wallet to accurately report your taxes. That means that it’s more important than ever to keep accurate records of all of your crypto transactions for tax purposes. 

When will this change go into effect? 

It’s important to note that these new requirements go into effect on January 1, 2025. That means if you’re filing your taxes for the 2024 tax year, you aren’t required to follow these new guidelines for 2024 (the deadline for filing your 2024 taxes is April 2025). 

However, you should take steps today to make sure that you can easily track the cost basis for assets within each specific wallet into the future. This will help you to stay compliant with IRS rules and regulations. 

What actions should I take because of the IRS’s new tracking requirements? 

Here are a few recommendations to help you stay compliant with the new IRS guidelines: 

Wallet consolidation: Some frequent cryptocurrency traders have dozens of wallets. If you’re in this situation, you should consider consolidating your assets into a handful of wallets. This can make it easier for you to track gains and losses in the case of a disposal. 

Different wallets for long-term/short-term holds: It can be a good idea to have separate wallets for the same cryptocurrency if you wish to hold your crypto for the long-term. One wallet can be for long-term storage, while the other wallet can be for disposals and transactions. Ideally, you should keep your highest cost basis crypto in your ‘disposal’ wallet to minimize your tax bill. 

Use crypto tax software: The easiest way to keep track of your cost basis across each individual wallets and exchange is to use crypto tax software like CoinLedger. The platform is trusted by more than 500,000 investors across the globe and can help you generate IRS compliant tax forms in minutes. 

How does CoinLedger help? 

You might be wondering how CoinLedger will help you stay compliant with the new IRS regulations if you’ve used multiple wallets, where you’ve acquired the same cryptocurrency at multiple price points. 

Let’s walk through how this works with an example. 

In the image above, we can see that we have 4 outstanding tax lots of Ethereum. Each lot was purchased at a different spot price of ETH (per unit price), which means that each lot has a different cost basis. 

Under the universal method, CoinLedger would treat all of these tax lots as if they were in a single universal wallet. After the migration to per-wallet tracking, the platform will allocate the outstanding cost basis to the three different wallets we hold ETH in. 

How does CoinLedger allocate cost basis after the shift to per-wallet tracking? 

By using the lowest-cost highest-wallet method, we will allocate the lowest per-unit cost basis lot, lot 1, to the wallet with the highest balance of ETH, Wallet A. Lot 1 has 1.35 units of ETH (at $1,290 per ETH), so we completely expend this lot when allocating to Wallet A.

We then go to the next lowest cost tax lot, lot 2. With only 0.578 units of ETH in this tax lot, we also completely expend this lot allocating to Wallet A. So now, Wallet A has been allocated 1.928 ETH (1.35 + 0.578).

We repeat this process again and go to the next lowest cost tax lot, lot 3. This lot consists of 2.57 total ETH (at $2,876 per ETH), so we first allocate 1.072 of this ETH to Wallet A (which completely exhausts wallet A as it has now been allocated 3 units of ETH). We then allocate the remaining 1.498 ETH to Wallet B, which is the next highest balance wallet of ETH across our three wallets.

We repeat this same process until all of our outstanding tax lots, and the associated cost basis, have been allocated. 

Now in the future, when we make a sale from Wallet A, Wallet B, or Wallet C, we can pull from the cost basis that was allocated to each individual wallet.

Want to use a different cost basis method on CoinLedger? You can do this by making this selection within the Tax Settings of your CoinLedger account. By default, American users will be selected to use the lowest-cost, highest-wallet method.

Conclusion 

It’s important to be proactive to make sure that you’re staying compliant with new IRS rules. 

CoinLedger can help. Get started with a free account today and see why yourself why CoinLedger is the #1 crypto tax & portfolio tracking solution for crypto investors. 

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