Key Takeaways:
- The IRS now requires wallet-level identification for digital asset sales; the first-in, first-out (FIFO) method applies if no timely records are made.
- Brokers must meet new reporting rules, and taxpayers need clear internal instructions for custodial assets.
- Recordkeeping and real-time basis tracking are essential — businesses should act to prepare systems and policies.
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The IRS has finalized regulations requiring businesses and individuals to track the basis of digital assets using a wallet-by-wallet method. These changes apply to transactions beginning in 2025 and introduce significant compliance obligations for taxpayers and brokers alike.
Here are answers to some frequently asked questions (FAQs) about the new digital asset basis reporting rules:
What changed for digital asset basis reporting in 2025?
As of January 1, 2025, the IRS no longer allows the “universal method” of basis tracking. Instead, businesses must track cost basis by wallet or account. Each sale must be tied to a specific unit, price, and wallet, shown by the time of transaction.
Can I still use FIFO to calculate digital asset gains?
Only if you fail to make a timely and specific identification. If no adequate identification is made by the time of sale, the IRS default is first-in, first-out (FIFO) — which can result in higher gains if older units have a lower basis.
What qualifies as “specific identification”?
You must identify:
- The specific units sold
- The wallet or account they were held in
- Their basis and holding period
- The time and date of the sale
This identification must occur before or at the time of sale, not retroactively.
What if my broker doesn’t support instructions for identification?
Under IRS Notice 2025-7, if your broker or custodial platform doesn’t yet have the technology to process instructions you can:
- Make and document each identification yourself at the time of sale, or
- Record a standing instruction in your internal books that applies to all 2025 sales from that custodial account
This relief only applies through December 31, 2025.
Do I need to update my systems or software?
Yes. The shift to wallet-by-wallet basis tracking increases the need for:
- Fewer wallets or custodial accounts to simplify tracking
- Digital asset accounting or tax software that supports real-time identification
- Internal controls to capture date, time, and unit-level transaction data
What are the IRS broker reporting rules and how do they affect me?
Starting in 2025, for digital asset sales (like securities), brokers must report:
- Customer name
- Gross proceeds
- Wallet/account identifier
- Cost basis (if known)
- Date and time of sale
Your records must align with what brokers report, especially assets held in custodial wallets or exchanges.
What is the risk of non-compliance?
The IRS now has a clear method to cross-check your reported gains with third-party broker data. If your basis reporting doesn’t align or lacks proper identification, you may:
- Trigger an audit
- Face adjustments under FIFO
- Lose the benefit of higher-basis asset selection
Can I still combine digital assets across wallets?
Only for valuation or reporting purposes, not for tax tracking. Under the new rules, each wallet or custodial account must be treated as a distinct ledger for cost basis and identification purposes.
How should I prepare?
- Map your wallets and custodial accounts
- Determine which brokers accept standing instructions
- Draft and log instructions where needed
- Implement compliant tracking tools
- Train your accounting or finance team
Early action will reduce complexity and limit reliance on FIFO.
Navigating IRS Basis Requirements for Digital Assets
MGO helps private companies evaluate their digital asset footprint, select tracking systems, and prepare IRS reporting changes. Whether you’re managing treasury holdings, vendor payments, or long-term investments, we support compliance with wallet-by-wallet identification rules, broker coordination, and basis documentation — before year-end deadlines put you at risk.
Connect with our team today to put the right systems, documentation, and controls in place.