Add override/migration for cost-tracking (IRS 2025 regulations)
in progress
S
Slim Hare
From Koinly:
Read about the upcoming changes here:
These changes only affect US users that are using the universal cost tracking methdod.
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User request:
As per the IRS, fro 2025 onwards we are required to use wallet based cost-tracking, previously universal cost-tracking was acceptable (and has been the default for Koinly). So if we do not separate our cost-tracking for each wallet we will be out of compliance with the IRS.
As it stands, changing to wallet based cost-tracking causes large discrepancies to all previous tax years. If we want to change to wallet based cost-tracking from 2025 onwards, it involved an extremely complicated process of creating a second Koinly account and migrating every token.
With the new IRS requirements, it would be great if an 'add override' feature could be made available for cost-tracking (similar to what we currently have for cost basis). This would enable us to switch from universal to wallet based from 2025 onwards, hence being in compliance with the IRS without negatively affecting all previous tax years.
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Gunmetal Alpaca
was this just pushed back till 2026 i think? i saw something about the crypto regulations being pushed back a year
S
Slim Hare
Gunmetal Alpaca pretty sure that was only for centralized exchanges as their infrastructure didn't have enough time to be ready. Nothing changes for us. From 1.1.25 we still need to calculate cost basis per account.
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Precious Parrot
Hey Koinly, what I'd like to know is: why aren't you clear on the HIFO / FIFO / LIFO choices? Sure, we are migrating to wallet based supposedly, but even so, after reading through the IRS guidelines, i dont see where FIFO is the actual requirement. I see that only wallet based tracking is the prime goal. And, its confusing, but it sounds like a part of the user declaration requirement is choosing HIFO , LIFO, or FIFO gonig forward too, not just wallet based. Even though the requirement has thankfully been delayed, I'd still like a response.
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Zaffre blue Grouse
+1, it would be nice to see what the end goal is now. I have yet to see the auto migration even occur, so perhaps that has been postponed?
C
Coming Porpoise
Petur,
I’m a US tax accountant & have numerous clients on Koinly.
The automatic migration to wallet based cost tracking will occur on January 1, 2025.
However, most users don’t update & finalize their transactions in Koinly until months after January 1, 2025.
What happens if the migration occurs automatically on January 1, 2025, then the user inputs additional 2024 transactions?
In that case, I believe this would generate data errors for the migration.
Let’s say the date is February 1, 2025. The user inputs 200 transactions for 2024. The migration occurred automatically on 01.01.2025, and didn’t include the 200 transactions.
How is Koinly addressing this situation, please?
Reviewing the Settings tab, I see the button for Add migration.
Once the migration is triggered, whether automatically or manually by the user, can the migration be deleted and redone?
If users can delete the automatic migration, then add the migration manually, this would allow users to add 2024 transactions AFTER 12.31.2024, and avoid data problems.
If it’s possible to delete the automatic migration, then add the migration manually at a later date in 2025, then users could:
1. Input & finalize all 2024 transactions in 2025
2. Delete the automatic migration that occurred on 01.01.2025
3. Add the migration manually
Looking forward to your response.
Z
Zaffre blue Grouse
Coming Porpoise i had seen in the FAQ here they addressed it under 'Can I modify transactions in 2024 or previous years after the migration?' I'm assuming based on the yes answer that adding txns, would update and then rerun the migration. But i wonder if the migration has been delayed due to IRS changes.
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Xeric grey Lark
If we continue making changes to 2024 prior to filing in April of 2025, should we not perform the automatic migration? It typically takes some time to get all my books in order since we have to do some chains manually with CSV files still.
Thanks!
C
Coming Porpoise
Xeric grey Lark Yes, I have the same question. See my post today
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Petur
Coming Porpoise: Xeric grey Lark
The migration will not prevent you from making changes to 2024 data.
It will simply make it so that the universal tracking method is used for prior years and wallet-based tracking gets used for 2025 onwards.
X
Xeric grey Lark
Petur I saw that the FAQ was updated to address these questions. Thank you so much! this is fantastic news.
Will the allocation report update automatically if we continue to make changes to 2024?
Lastly, is Koinly providing a letter that we selected an allocation method prior to EOY or should we provide our own? (I will do my own just in case - but just wondering)
Thanks to the team for all their hard work! I’m sure this was not an easy task to implement.
X
Xeric grey Lark
Petur one additional question also. I am hearing that a “wallet” is considered a seed phrase.
If we have multiple wallets setup on Koinly which are part of the same seed phrase and wallet address (e.g. multi-chains like eth, arb, op, base, etc on a single metamask wallet for instance) - we could potentially merge all these and have them treated as 1 wallet for tax lot purposes since it IS the same wallet. right now, I have a separate “base” wallet, separate “eth” wallet, etc however it is one metamask wallet.
Does “grouping” wallets in Koinly account for this? Wondering if it would be easier to group all my individual wallets created inside Koinly created with the same seed.
Thanks!
C
Coming Porpoise
Petur Wonderful! Relieved to hear that the migration will not prevent users from making changes to 2024 data. Thank you & have a Happy New Year!
P
Petur
in progress
Hello everyone!
We have finally released proper guidance on the methods that will be used fro the IRS tracking migration.
Please find details and FAQ in this article:
In short:
- To qualify for the safe harbor, you need to select your allocation method before January 1st, and document which method you will use. You do NOT need to perform the actual migration, or even get all of your books in order prior to January 1st (common misunderstanding).
Koinly is only planning to offer a single option for the allocation method, so this will be selected fro you automatically, and you will receive an email with documentation before EOY.
- The actual migration might be ready on Jan 1st, but it may not be be ready until later in January. The migration itself can be executed at any time in 2025, since it will only affect 2025 calculations onwards. The only thing that needs to be done prior to 2025 is the documenting of the allocation method that you intend to use (this is because you are not allowed to change your mind later about the method you will use)
Please see the article for more info, but no further action is required from users at this time
C
Coming Porpoise
Petur Thanks so much for implementing this! For users which are already using wallet based cost accounting, is any action necessary? I would think that that no action is required.
P
Petur
Coming Porpoise
Good question!
If you are already using wallet based tracking then these changes do not affect you at all :)
Added to the article as well
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Tangerine yellow Halibut
Petur how do you reconcile your interpretation (that only the allocation method must be selected and documented by Jan 1) with Rev Proc 2024-28, SECTION 5. SNAPSHOT AS OF JANUARY 1, 2025, AND SAFE HARBOR SCOPE?
Specifically, my (layperson's) read of 5.02(4) (and 5.02(5)(b)) is that both the wallet snapshots and the unit allocations must be complete not only by tax filing due date (5.02(4)(b)), but also prior to any "sale, disposition, or transfer" (5.02(4)(a)). I for one expect to be doing some transactions early in the year...
Additionally, I've seen several writings and videos by various CPAs and tax professionals. My understanding is that their interpretations of this Rev Proc align with what I wrote above. You're the first person I've understood to suggest that neither the wallet snapshots nor the asset allocations need to be done by Jan 1.
It seems to me that Koinly is going to fail to implement the IRS's unreasonable and unclear requirements by their ridiculous deadline. PLEASE PROVE MY INTERPRETATION WRONG!
P
Petur
Tangerine yellow Halibut:
This is described in section 5.02(5):
(5) A taxpayer making a global allocation described in section 5.02(2)(b) of this
revenue procedure:
(a) Must describe the global allocation method in the taxpayer’s books and
records before January 1, 2025;
(b) Must satisfy the requirements set forth in sections 5.02(1) of this revenue
procedure and complete the allocations of all units of unused basis to the
pools of remaining digital asset units within each of the taxpayer’s wallets
or accounts before the later of the dates set forth in section 5.02(4)(a) and
(b) of this revenue procedure, as applicable;
Perhaps this is the source of the confusion is that:
- when applying a 'Specific unit allocation', the allocation must be completed before the earlier of the dates
but
- when applying a 'Global allocation rule', the allocation must be completed before the later of the dates.
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Tangerine yellow Halibut
Petur by "selecting" this "Global allocation rule", does this mean that we're committing to using per-wallet FIFO, henceforth, forever? If so, has Koinly determined how cost basis will move with transfers? (i.e. Maybe we can work around suboptimal ordering by breaking holdings into separate wallets later...)
("Selecting" in quotes since as I understand it, Koinly isn't giving us the option to do otherwise, if I understand correctly.)
I'd like to be able to implement some (per-wallet) tax-optimized strategy based on SID (e.g. long term capital gain preferred HIFO). Will this be possible? It's not clear to me whether/how the exchanges will support the requirement to identify lots prior to disposals, though.
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Petur
Merged in a post:
IRS RP 2024-28 Cost Basis Report
S
Solid Kingfisher
Per IRS and Koinly blog post: Rev. Proc. 2024-28, introduces a safe harbor for allocating unused basis in digital assets, which becomes effective starting January 1, 2025. The safe harbor allows taxpayers to allocate unused basis to digital assets they hold at that time.
To get ready for the 2025 IRS reporting requirements, we need a report that provides the following for all assets: asset type, date of purchase, cost basis, and current wallet.
This report is required by Dec 31 to satisfy the IRS safe harbor deadline. I understand that Koinly is working on a feature that will allow a user to move from universal to wallet-specific cost tracking without impacting prior years. This feature can be released in early 2025 without any impact. However, the wallet-specific cost basis report being requested is required before YE 2024.
P
Petur
Merged in a post:
Migrate to wallet-based cost tracking
Jack
I want to be able to use Wallet-based cost tracking from a specific year so I want to have the option to migrate from universal cost tracking to wallet-based.
Lots in wallets without physical balances (of a particular asset) should be transferred to wallets with balances but without physical lots (because they were already spent)
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Pewter Pigeon
Unfortunately, doesn't look like Safe harbor Part of the new IRS change we will be able to use Koinly for that part in time, but based on my rough understanding from the CryptoTaxAudit guy the Safe harbor isn't a requirement but an option to help clean up past years and their cost basis.
BUT Safe Harbor will importantly give you clear cost basis to help protect yourself from IRS by having a better record and history of actual cost basis per wallet and token. ,
Without Safe harbor you just need to switch to wallet based and FIFO fo everything for the 2025 tax year.
Koinly says they will be adding a lock to previous years function to wallet based. So it doesn't affect previous year when switching to it.
Unfortunately stuck in the same place as the rest.
Also Switching to specific identification method instead of FIFO will actually have better tax savings.
C
Combined Toucan
OK so I see the setting to enable per-wallet cost basis, which wasn't not enabled on my account! I enabled that now. when was this added? I didn't even know that was an option. But even if I did before I don't think I knew what was the right option. Until now, with IRS rules saying it needs to be per-wallet. But it sounds like this still isn't exactly what we need, or only part of it. right?
Also, I enabled this option and I only see a cost basis per asset, not per wallet. I assume that's because its not fully implemented?
I'm a bit worried as well. And maybe this is the wrong place to ask, but it sounds like if we don't get this filed with our cost basis per wallet we could end up with a $0 basis, which would really screw us all big time! Is that right?
P
Petite Crawdad
Koinly just posted an FAQs regarding IRS Rev. Proc. 2024-28: https://www.reddit.com/r/koinly/comments/1hffewt/faqs_irs_rev_proc_202428_switching_from_universal/
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