NOTE: This article is only relevant for taxpayers in the USA that are not using 'Wallet-based cost tracking'. If you are already using wallet based tracking, then you will not be affected by these changes at all.
Starting January 1, 2025, the IRS requires wallet-based cost tracking for crypto assets, which means that the Universal tracking method will no longer be allowed. However, simply enabling "wallet-based cost tracking" in your settings will not be enough as that will modify all your past cost-basis calculations. Koinly has therefore introduced a "Migration" feature which will allow you to migrate from universal cost basis to wallet-based cost basis without affecting prior cost basis calculations / tax reports.
How to setup the migration:
Koinly will setup the migration automatically for US users who have purchased a tax report and have logged in at least once in 2024 and have not added the migration manually by end of 2024. This is to help inactive users, if you are reading this, then we suggest you simply follow the below steps and do it yourself.
Go to the Cost basis section in your settings.
Navigate to the Migrations tab.
Click on “Add migration.”
Enter the date, migration type and allocation method as shown below
Click Save.
This will schedule the migration for 1 Jan 2025. There is one final step which is to enable Wallet-based cost tracking in your settings, however, this step will be done automatically as soon as the migration has completed so you don't need to do this. Note that even if the migration is not triggered on January 1st, you will still be protected by the "safe harbor" rule as long as you have set it up. You can read more about this in the FAQ below.
FAQ
When will the migration be triggered?
The migration will be triggered around mid-Jan. This is to give time for users to sync their wallets and ensure the allocation works as expected. You can continue to import your earlier data and also add transactions for 2025. The cost basis for the 2025 transactions will be incorrect until the migration is triggered but will be fixed automatically afterwards.
Do I need to enable wallet-based cost tracking?
No, we will do this for you when the migration has triggered.
Can I modify transactions in 2024 or previous years after the migration?
Yes, the migration will re-run automatically anytime you add a transaction to earlier years. Pre-2025 transactions will continue to use universal cost tracking.
I accidentally enabled wallet-based cost tracking, what can I do to fix this?
Simply disable it and create the migration by following the steps above.
How can I download a tax lot report that shows the universal tax lots?
We plan on releasing a report which shows all your remaining tax lots as of the date of the migration and how they have been allocated to your wallets. This report will be available after the migration has triggered.
How does the "Lowest cost → Biggest wallet" allocation method work?
With this method your lowest cost tax lots will be allocated to the wallets which have the highest holdings as of the date of migration. The idea is that you would want to have your low cost assets in a cold wallet which likely has the largest balance compared to your other wallets. If this is not the case for you then you can move assets around before 1 Jan 2025 to conform to this. You can also suggest alternative allocation methods by posting in this feedback thread.
What is the Safe harbor rule and how do I ensure compliance?
The IRS has introduced a "safe harbor" rule, in order to simplify the migration process, and allow for some flexibility. Simply put, this rule states that the lots/units that are unused and belong to you as of Jan 1st, 00:00 can be divided between your individual wallets using any reasonable allocation method. In order for a taxpayer to take advantage of this rule, they must meet a number of different criteria and requirements, such as:
Applying an appropriate allocation method correctly, so that no cost-basis or unit gets counted twice, or not tracked at all.
Keep a detailed report on how the allocation was made. This report will be generated by Koinly when the migration is executed.
The migration must be made before you file your taxes for the 2025 tax year (ie. before the deadline in 2026), in order for your 2025 reports to be accuratre. Wallet-based cost tracking must be used from Jan 1st, 2025 onwards, regardless of when the migration is executed.
An allocation method must be selected before Jan 1st, 2025. Taxpayers must keep a record of which method they have selected. If a taxpayer does not use the method that they selected before Jan 1st, then they will not qualify for the safe harbor protection.
For more detailed information about the safe harbor, you can read the official documents from the IRS.