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.
But you can't just enable "wallet-based cost tracking" in your Settings as this will change the calculations for all previous years and change your historical reports. To simplify our users' compliance with the new rules, we developed a migration feature from universal to wallet-based tracking.
What is wallet-based cost tracking?
Wallet-based cost tracking is a method that tracks cryptocurrency transactions and calculates cost basis on a per-wallet basis, allowing for more granular and accurate tax liability calculations as required by the IRS. You can read more about cost tracking methods in:
Setting up cost tracking migration
ℹ️ We set up and activated the migration automatically for most of our users from the US but be sure to check if it's activated on your account. The migration is set up correctly if:
There is a cost tracking migration set up in "Migrations" tab with status active
Date of the migration is set as Jan 1st 2025
Wallet-based cost tracking is set to ON
You can set the migration from your Settings by going to "Cost Basis" and then to "Migrations" tab. For detailed instructions, see:
Lot allocation report
You can download the lot allocation report from the "Migrations" tab by clicking the 3-dots next to the migration once the migration is active:
Frequently asked questions
What is the Safe Harbor?
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 (not sold) and belong to you as of Jan 1st, 00:00 can be divided between your individual wallets using any reasonable allocation method (you can decide which lots should go to which wallets). In order for a taxpayer to take advantage of this rule, they must meet a number of different criteria and requirements, such as:
Apply an appropriate allocation method correctly
No cost-basis or unit gets counted twice, or not tracked at all.Keep a detailed lot allocation report
A report showing how the allocation was made (which lot was allocated to which wallet)Perform the migration before you file your taxes for the 2025 tax year
Wallet-based tracking has to be used for tax year 2025 so the migration has to be done before you file them (ie. before April 2026)Select an allocation method 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.
Which lot allocation method can I use?
Koinly currently supports only one allocation method: Lowest cost → Biggest wallet.
You can also suggest alternative allocation methods by commenting on this feedback thread.
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.
Do I need to enable wallet-based cost tracking?
Once the migration is set up, wallet-based tracking needs to be toggled ON to activate it.
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 enabled wallet-based cost tracking before setting the migration
Simply disable it, create the migration and enable it again afterwards.
What about the IRS’ decision to delay the requirements?
The IRS has delayed requirements for exchanges to track and report the cost-basis for trades, but this decision does not apply to taxpayers.