Crypto investors who feared being locked into a single accounting method for their trades just got more breathing room, and then got even more after that. Over the past eighteen months, the IRS has issued two rounds of relief pushing back mandatory First-In, First-Out (FIFO) cost-basis treatment for digital assets, first to January 1, 2026, and more recently through the end of 2026. Here is what actually happened, why it matters, and what it does not change.
How We Got Here
In July 2024, the Treasury Department and the IRS finalized long-awaited regulations governing how brokers must track and report the cost basis of digital assets sold on centralized platforms. Those rules also introduced Form 1099-DA, the first tax form built specifically for digital asset transactions, with broker reporting of gross proceeds beginning for 2025 transactions.
A key piece of the regulations set a default accounting method for any investor who did not actively choose one: First-In, First-Out. Under FIFO, the earliest-purchased units of an asset are treated as the first ones sold. For long-term crypto holders sitting on coins bought years ago at low prices, that default could be costly, since selling the oldest, cheapest units first tends to produce the largest taxable gains.
The First Delay
The catch was that most centralized exchanges simply were not ready. Building the infrastructure to let customers specify which units they were selling, whether through Highest-In-First-Out, Specific Identification, or another method, takes time, and many brokers had not finished that work by the original deadline. Forcing FIFO onto investors before brokers could support alternatives risked exactly the kind of unintended, oversized tax bills the rule was meant to help investors avoid, particularly in a rising market where older holdings carry the lowest cost basis.
In response, the IRS issued transition relief in early 2025 allowing taxpayers to keep using their preferred accounting method through December 31, 2025, rather than defaulting automatically into FIFO. That relief did not cancel the new reporting framework. Brokers were still required to begin reporting gross proceeds on Form 1099-DA for 2025 transactions, with cost-basis reporting following on a delayed schedule. It simply gave both sides more runway before FIFO became the automatic fallback.
A Second Extension
That runway turned out to be too short. By early 2026, many custodial brokers told the IRS and Treasury that while their systems for reporting overall transaction gains were largely complete, the harder task of accepting and processing customer-specific identification instructions was still not finished. Rather than let FIFO snap into place by default for accounts at brokers who simply weren’t ready, the IRS extended the relief a second time, through Notice 2026-20, pushing the deadline out to December 31, 2026.
Under this extended relief, taxpayers can avoid the automatic FIFO default by documenting their specific identification choices or long-term holding instructions in their own personal records, even if their broker’s systems still cannot formally accept that notice. The IRS has said it will treat that self-documentation as sufficient, as long as it is made before the relief period ends.
What the Relief Does Not Cover
A few limits are worth flagging for anyone relying on this guidance. The relief applies only to assets held through brokers; crypto held in self-custodied wallets was never subject to the FIFO default in the same way and follows different ordering rules entirely. The relief also does not pause or change brokers’ underlying reporting obligations under the 1099-DA framework. Gross proceeds reporting for 2025 transactions was still required starting in 2026, and going forward, the cost-basis figures a broker reports to the IRS may not match an investor’s own books, particularly for anyone relying on the self-documentation option rather than a broker-confirmed method. Taxpayers are expected to reconcile any differences themselves.
What It Means Going Forward
For now, crypto investors retain the flexibility to choose how their cost basis is calculated, FIFO, HIFO, specific identification, or another permitted method, through the end of 2026, rather than being defaulted into FIFO the moment a broker’s systems fall short. Whether the IRS extends this relief again will likely depend on how quickly the brokerage industry finishes building specific-identification support. Until then, investors with significant unrealized gains on older holdings have another window to plan sales deliberately rather than have an accounting method chosen for them by default.
This article is for general informational purposes and is not tax or legal advice. Crypto tax treatment can be complex and fact-specific, so anyone making decisions based on this guidance should consult a qualified tax professional.
