Understanding the New Safe Harbor Rules: Guidance and Reassurance
Yes, allocation is assigned as of January 1, 2025. We will guide you through that allocation soon, but nothing needs to be submitted now regarding it. The first time the IRS will see that allocation is on your 2025 tax return, submitted in 2026.
When you file your 2025 taxes in 2026, the IRS will make changes to how users calculate their cost basis and require taxpayers to have an allocation plan (or Safe Harbor plan). The IRS is expected to provide further guidance as we approach that period, but we have you covered.
In order to ensure the simplest outcome for ZenLedger customers, our platform is defaulting to a global allocation applying the lowest cost bases to the biggest wallets. Supporting documentation, if needed, will be accessible in your settings at any time. This means that there is no action required for ZenLedger customers, but you can log in and download these reports if requested by your CPA or another party.
Key Points About the Safe Harbor Rules
Complexity of the Rules: The IRS guidance outlined in Revenue Procedure 2024-28 is still developing, with CPA institutions requesting clarification on some sections. The current wording has led some professionals to believe that all unused cost basis must be allocated by January 1, 2025. While there’s no harm in being proactive, this interpretation may not be practical for most taxpayers.
Practical Challenges: Allocating unused tax basis cost lots to wallets before January 1, 2025, is challenging for several reasons:
Software limitations: Many crypto tax software tools, including ours, are still adapting to the new rules.
Transaction reconciliation: Most taxpayers have not yet reconciled their 2024 crypto transactions to date, making immediate action impractical.
New IRS Regulations: Earlier this year, the IRS released final regulations on gross proceeds and basis reporting by digital asset brokers. These regulations introduce significant changes, including the requirement to track cryptocurrency gains and losses separately for each wallet or exchange account starting January 1, 2025. The "universal wallet approach" will no longer be permitted. Each wallet or exchange will need to be treated as a separate ledger, with cost basis tracked individually.
Our Interpretation and Plan
Our team is closely monitoring the guidance and believes that a global allocation of unused basis should:
Be completed with an accounting date of January 1, 2025: This ensures consistency when preparing your 2025 tax return (which is not reported or due until 2026).
Align with updated software capabilities: This approach allows sufficient time for our software to incorporate the new IRS guidance in 2025, ensuring accuracy and compliance.
ZenLedger is already working on adapting our software to meet these new regulations. While the rule changes do not apply to the 2024 tax year, the functionality required for compliance will be ready for the 2025 tax year. Once this tool is available, we will alert our users. This tool will allow you to allocate your existing cost basis and maintain proper records from now on, following the IRS Safe Harbor rules.
Why No Immediate Action Is Needed
Given the current state of guidance and software readiness, we believe no immediate action is required before December 31, 2024. This timeline provides:
Peace of mind: You can focus on reconciling your 2024 transactions without rushing to allocate unused basis prematurely.
Confidence in our tools: Our software will integrate the necessary updates to handle these allocations properly, giving you a seamless experience.
It is important to note that the tool will use the 2024 end-of-tax-year data as a foundation. Therefore, ensuring that your 2024 taxes are complete and accurate is essential for a smooth transition to the new rules.
Preparing for the Transition
To ensure compliance with the new rules, your records in ZenLedger need to match your actual wallet and exchange balances as of January 1, 2025. We recommend reviewing your holdings on the "Holdings" tab of our platform and verifying that they align with your wallet and exchange balances. If you have any questions or need assistance, our support team is available via live chat to help.
Disclaimer
Please note: This article is for informational purposes only and should not be considered tax advice. The new Revenue Procedure 2024-28 is still subject to updates, and our interpretation may evolve as new guidance becomes available. Always consult with a tax professional for advice tailored to your specific circumstances.
Next Steps
Stay tuned for updates as we continue refining our software to meet these new requirements. Rest assured, we are committed to providing you with the tools and support needed to navigate this transition confidently.