How to Prepare for the Transition to Account Level Cost Basis
The IRS has introduced new regulations that mandate wallet-based tax lot tracking for reporting purposes. This change means that rather than tracking cost basis and gains across accounts or exchanges as a whole, you will now need to track tax lots individually for each wallet or address. This shift will require many teams who report in the US to change the way they manage and report digital asset transactions.
TL;DR
As of January 1, 2025, companies must adopt wallet-level cost basis tracking for digital assets.
IRS Revenue Procedure 2024-28 allows reallocating unused basis among wallets ahead of the Jan 1 cut over.
We're committed at Integral to helping our clients make the transition.
Changes at a Glance
The IRS has introduced new regulations that mandate wallet-based tax lot tracking for reporting purposes. This change means that rather than tracking cost basis and gains across accounts or exchanges as a whole, you will now need to track tax lots individually for each wallet or address. This shift will require many teams who report in the US to change the way they manage and report digital asset transactions.
Who is Impacted?
This change impacts:
Any taxpayers reporting digital asset holdings in the US: If you hold cryptocurrencies or other digital assets in wallets or across multiple exchanges, and report with a US jurisdiction, this new rule applies.
For all affected clients, it's essential to begin implementing wallet-specific tracking to maintain compliance with these updated IRS requirements.
What do you need to Do?
As of latest Jan 1st, 2025,
Adopt Wallet-Based Tracking: Begin tracking tax lots at the wallet level. This change may require adjustments in your current accounting practices, which Integral can help facilitate.
Reallocate Unused Tax Lots: The safe harbor provision in IRS Revenue Procedure 2024-28 allows taxpayers to allocate unused basis in digital assets among wallets or accounts by January 1, 2025. The allocation is treated as irrevocable and must meet a series of requirements, with adequate record-keeping for each wallet. This ensures a clear basis for each digital asset unit, facilitating accurate reporting in line with IRS requirements on asset disposition and gains tracking.
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Integral has you Covered
This is a major change for teams, many of who will be reallocating hundreds of thousands of tax lots. We're committed at Integral to helping our clients make the transition. Here's how we're supporting you.
Safe Harbor Experience: In the first week of December, impacted clients will be able to reallocate their unused entity-level tax lots to wallets. We'll prompt clients to choose a cut over date, and will generate a cost basis report that matches unused tax lots to on-chain wallet balances. Once approved by the client, we'll reallocate those tax lots within the safe harbor provision.
Support for Custom Allocation: For clients who have a specific allocation of tax lots in mind, our technical team will be on hand to implement custom allocations with your teams.
Wallet-Based Tax Lots: Once unsued tax lots have been allocated, impacted clients will be transitioned to wallet-based tax calculation going forwards.
