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As the IRS continues to refine its guidelines on digital assets, an important update (Revenue Procedure 2024-28) is set to significantly change how taxpayers must allocate the cost basis for their digital assets.
Effective January 1, 2025, the "universal wallet approach" can no longer be used to track digital assets. Instead, specific identification of assets must be made at the time of sale, with the default FIFO (First-In, First-Out) rule applied if no specific identification is provided.
What Does Rev. Proc. 2024-28 Mean for Your Business?
The IRS published several new updates:
- No More Universal Wallets: Digital assets must be tracked by individual accounts, requiring more detailed and accurate record-keeping.
- Mandatory Specific Identification: Taxpayers must identify the specific asset being sold or transferred by the date and time of the transaction.
- FIFO Default: If specific identification isn't made, the FIFO method will automatically apply, which could lead to unexpected tax liabilities.
- Annual Reporting: When operating on centralized exchanges, the taxpayer will receive annual reporting from the exchange indicating transaction activity for the last year, including cost basis and asset disposition proceeds.
Bitwave: Your Solution for Seamless Compliance
Bitwave is here to help you navigate these new regulations. Our platform is designed to make compliance simple and efficient, allowing you to focus on what matters most—growing your business.
With Bitwave, you can confidently manage your digital assets, knowing that our advanced software empowers you to seamlessly adapt to new regulations.
- Comprehensive Asset Classification: Easily classify assets at the lot level for precise tracking.
- Customizable Picking Methodologies: Select a picking methodology by asset classification, wallet, account, or inventory to match your unique needs.
- Effortless Reallocation: Seamlessly reallocate existing lots for 12/31/24 cost basis, ensuring you are prepared for the new rules.
- Specific Identification: Quickly and accurately identify specific lots for disposals, minimizing your tax burden.
- Blended Picking Methodologies: Flexibly apply a blended picking methodology for different asset classes or wallets.
- 1099-DA Reporting: Simplified 1099-DA reporting for broker-hosted, exchange, and custodial wallets, ensuring you stay compliant with IRS requirements.
Don’t wait until the new regulations take effect. Contact Bitwave to learn how our platform can help you stay compliant and optimize your tax strategy.
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as tax, accounting, or financial advice. The content is not intended to address the specific needs of any individual or organization, and readers are encouraged to consult with a qualified tax, accounting, or financial professional before making any decisions based on the information provided. The author and the publisher of this blog post disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use or application of any of the contents herein.
