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Despite how they look, HIFO, FIFO, and SpecID aren’t names for trendy neighborhoods with too many craft breweries. No, they’re accounting methods used to determine the cost basis for assets. And if you hold crypto assets with a centralized finance broker (or a “CeFi,” if you’re hip), you’ll want to select one before 2025 is out.
A few months back, the IRS finalized regulations under Section 6045 that required crypto holders to specify the accounting approach they wanted to use. For instance, they might have opted for the “highest-in, first-out” (“HIFO”) or specific identification (“SpecID”) methods. If they failed to choose a method, the IRS would default to the “first-in, first-out” or FIFO approach.
The regulation would have become active on January 1 of this year, but the IRS realized that many CeFis didn’t yet have the infrastructure in place to support the SpecID method, and that some users would have been forced to use FIFO. So it’s giving crypto holders temporary relief. They can choose which accounting method they want to use for sales of their assets between now and December 31, 2025. After that date, they’ll need to elect one to use going forward.
That’s something crypto investors might want to avoid, MSN reported. The FIFO method assumes that investors will sell their oldest assets first. As these assets often cost less, investors could see higher capital gains and taxes, according to MSN.
“Make sure the CeFi broker accounting method matches your crypto tax software tool so your tax lots are in sync,” crypto expert Shehan Chandrasekera reminded investors on X.