IRS to Require Separate Cost Basis Tracking for Multiple Wallets Starting in 2025

The Internal Revenue Service (IRS) is set to implement a significant new rule for cryptocurrency investors beginning in 2025. This rule mandates that taxpayers with multiple cryptocurrency wallets must track the cost basis for each wallet separately. This marks a departure from the previous "universal cost basis tracking" method, where investors could assign a single cost basis to all their cryptocurrency holdings.

Why the Change?

The IRS has determined that the universal cost basis tracking method can lead to inconsistencies and potential tax evasion. By requiring separate cost basis tracking for each wallet, the IRS aims to:

• Improve accuracy: Ensure that taxpayers report the correct capital gains or losses when selling or trading cryptocurrency.
• Prevent tax evasion: Make it more difficult for individuals to manipulate their cost basis to reduce tax liabilities.
• Enhance compliance: Simplify the process for the IRS to audit cryptocurrency transactions.

What Does This Mean for Investors?

For cryptocurrency investors with multiple wallets, this new rule will necessitate more detailed record-keeping. They will need to:

• Identify each wallet: Assign a unique identifier to each wallet.
• Track purchases and sales: Record the date, amount, and cost basis of every cryptocurrency purchase and sale made through each wallet.
• Calculate gains or losses: Determine each wallet's capital gains or losses based on the difference between the selling price and the cost basis.

Tips for Compliance

To ensure compliance with the IRS's new rule, investors should consider the following:

• Utilize cryptocurrency tax software: These tools can automate tracking cost basis and calculating gains or losses.
• Maintain detailed records: Keep accurate records of all cryptocurrency transactions, including wallet addresses, timestamps, and transaction hashes.
• Consult with a tax professional: Seek advice from a tax advisor specializing in cryptocurrency taxation to understand the implications of the new rule and ensure proper reporting.

Conclusion

The IRS's requirement for separate cost basis tracking for multiple cryptocurrency wallets represents a significant change for investors. By understanding the new rule and implementing appropriate record-keeping practices, individuals can avoid potential tax penalties and ensure compliance with tax laws.