The Internal Revenue Service has extended a temporary relief period for crypto tax reporting through 2026, giving investors more time to comply with new cost-basis rules.
The extension, published on 18 Mar, allows taxpayers to continue using alternative methods to identify which digital assets are being sold or transferred rather than strictly following broker-based identification requirements, an important step in calculating taxable gains.
Under regulations finalized in 2024, investors are expected to identify specific units of crypto at the time of sale, such as by purchase date or price.
The relief comes as many custodial platforms are still unable to process detailed user instructions. According to a KPMG analysis, some brokers "do not have in place the technology needed to accept specific instructions" from customers, meaning transactions could otherwise default to first-in, first-out (FIFO) treatment without the extension.
Control over crypto sales
At the centre of the change is a key issue for investors: how to determine which specific units of a digital asset are being sold when they hold multiple positions acquired at different prices? Under default rules, transactions fall back on the FIFO method, meaning the earliest purchased assets are treated as sold first, often resulting in higher taxable gains.
During the extended reporting window, taxpayers can rely on their own records or standing instructions to determine which assets are disposed of. This feature is particularly relevant for active traders, high-net-worth holders and institutions that actively manage tax exposure across large or complex portfolios.
Crypto tax lags
The IRS extension comes as policymakers and industry participants increasingly acknowledge that crypto tax rules are struggling to keep pace with the market.
"Even as blockchain technology reshapes our financial system, tax policy has not kept pace," said Sarah Riley of Fidelity Investments at the DC Blockchain Summit on 18 Mar. Representative Max Miller added that the US tax code remains rooted in an "analog era" and is "far behind where we are."
A key challenge is applying traditional tax concepts to crypto transactions. "It’s hard to pinpoint what the base price is," Senator Cynthia Lummis said in a separate panel at the event, pointing to persistent difficulties in tracking cost basis across transactions.
Lummis suggested the complexity of existing rules could warrant broader changes, saying capital gains treatment may need to be reconsidered when digital assets are used as a means of payment.
