Critical Changes Coming for Crypto Asset Owners: Act by December 31, 2024
If you or your family members hold cryptocurrency, significant changes are on the horizon that may impact your tax strategy. It’s crucial to act before December 31, 2024, to qualify for IRS "safe harbor" protections related to the basis of your crypto assets. Here’s what’s changing and how you can prepare.
What’s Changing?
Starting in 2025, the IRS will require you to track the cost basis of crypto assets separately for each wallet or exchange. Previously, you could aggregate this information across all wallets and exchanges, using methods like FIFO (First-In/First-Out) or HCFO (Highest Cost First Out) globally. This flexibility allowed you to minimize capital gains taxes strategically.
Under the new rules, you must track and allocate cost basis per wallet or exchange. Failing to act now could complicate your tax filings and increase your liability in the future.
Example of the Impact
Let’s say you purchased:
- 2 Bitcoin on Kraken at $50,000 each
- 2 Bitcoin on Coinbase at $5,000 each
If you sell Bitcoin on Coinbase today, current rules allow you to apply the higher Kraken cost basis to minimize capital gains. Starting in 2025, this strategy won’t be allowed. Each wallet’s cost basis must remain isolated.
One-Time Safe Harbor Opportunity
The IRS offers a one-time “safe harbor” until December 31, 2024, to allow you to allocate cost basis across accounts as you see fit. Missing this deadline could significantly limit your tax strategy options.
To review Rev. Proc. 2024-28 and the IRS guidance, click here.
How to Prepare
Here are four options to consider before year-end:
- Consolidate Accounts
Move all digital assets into one wallet or exchange to simplify compliance. Use the safe harbor to allocate your basis globally or by unit. After the safe harbor period, you can redistribute assets to reduce concentration risks. - Use Crypto Tax Software
Invest in software that tracks wallet-by-wallet basis allocation to streamline compliance. Be sure to document your basis data thoroughly before integrating it into the software. - Sell Assets Before 2025
Liquidate assets and apply unused basis before January 1, 2025. This approach resets your holdings and simplifies compliance but requires careful planning to manage tax implications. - Retain Holdings and Allocate Basis
Use Rev. Proc. 2024-28 to allocate unused basis by signing a digital asset allocation plan before the safe harbor deadline. Work with your CPA to determine the best allocation method for your portfolio.
Steps to Take Now
- Inventory Your Holdings
List all crypto assets by wallet or exchange, including purchase dates and costs. - Consolidate Where Possible
Combine assets to simplify compliance without compromising diversification. - Review Your Estate Plan
Ensure your plan accounts for your crypto assets under the new rules. - Coordinate with Advisors
Schedule a meeting with our team and your tax advisor to align your strategy.
Why This Matters for Your Legacy Planning
Cryptocurrency presents unique challenges in estate planning. Without proper documentation and access to your private keys, your crypto assets may become inaccessible to your heirs.
Fortunately, current laws provide a "step-up in basis" upon your death, meaning your heirs can sell crypto without paying capital gains on growth before your passing. Proper planning ensures they can access and benefit from your holdings.
We Can Help Protect Your Digital Legacy
At Sibley Law & Associates, your trusted Personal Family Lawyer® Firm, we understand the intersection of estate planning and digital assets. We’ll help ensure your crypto holdings are properly documented and integrated into your estate plan, working alongside your tax advisors to meet IRS requirements.
Click here to schedule a discovery call and start protecting your digital legacy for your loved ones.
This article is a service of Dedra Sibley, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Life & Legacy Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life & Legacy Planning Session™.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.





