For years, many crypto holders treated all their units of one asset as a single pool across wallets and exchanges. The final regulations under section 1012 changed that for acquisitions and dispositions of digital assets on or after January 1, 2025: specific identification and the first-in, first-out default apply to units held within a single wallet or account. Revenue Procedure 2024-28 gave a safe harbor for moving the old pooled basis into each wallet. For a 2025 or 2026 client file, the question is whether the allocation was made and documented in time.
What the safe harbor allowed
The revenue procedure provides a safe harbor under section 1012(c)(1) for allocating unused basis in digital assets to the digital assets held in each wallet or account as of January 1, 2025. A taxpayer may make any reasonable allocation of units of unused basis to a wallet or account that holds the same number of remaining units. Key terms:
- Remaining digital asset units: units the taxpayer acquired or received before January 1, 2025 and still holds in a wallet or account on that date.
- Units of unused basis: original per-unit basis (with the acquisition date) that was not attached to a unit sold, disposed of or transferred before 2025.
The safe harbor is available only if the taxpayer meets requirements in section 4.02, among them:
- Each remaining unit and each unit of unused basis relates to a capital asset, and both are the same type of digital asset.
- The taxpayer maintains records showing the number of remaining units in each wallet or account.
- The taxpayer maintains records showing the units of unused basis, the original cost basis of each, and the acquisition date.
- The allocation is irrevocable for all purposes of section 1012.
The taxpayer may apply the safe harbor to one asset at a time. Bitcoin is one type and Ether is another.
Two ways to allocate, and the deadline
A taxpayer may make a specific unit allocation, tying identified units of unused basis to a pool of remaining units in each wallet. Alternatively, a global allocation uses a rule that orders all units of unused basis by distinguishing characteristics, for example earliest acquisition date, and assigns them successively to wallets. A rule that leaves the taxpayer with discretion after January 1, 2025 is not a global allocation.
For a specific unit allocation, the revenue procedure requires completion before the earlier of (a) the first sale, disposition or transfer of the same type of digital asset on or after January 1, 2025, or (b) the due date, including extensions, of the 2025 federal return. Until the allocations are complete, acquisitions made on or after January 1, 2025 and held in the same wallet must be separately accounted for. A global allocation has two timing rules: the method must be described in the taxpayer's books and records before January 1, 2025, and the allocations must be completed before the later of the two dates above.
For a calendar-year individual who extended, the 2025 return deadline was October 15, 2026. The review in a client file is therefore a check on whether the records exist and predate the first sale, not a chance to start over.
Worked example of why the allocation matters
A client holds three units of one coin. Wallet A holds two units; Wallet B holds one. The unused basis is one unit at $20,000 (2022), one at $30,000 (2023) and one at $60,000 (2024). The client's documented allocation assigns the $20,000 and $30,000 units to Wallet A and the $60,000 unit to Wallet B. In 2026 the client sells one unit from Wallet A for $100,000, using first in, first out within the wallet.
- Oldest unit in Wallet A: $20,000 basis.
- Gain: $100,000 minus $20,000, or $80,000.
Had the documented allocation put the $60,000 unit in Wallet A with the $30,000 unit, the oldest would be $30,000 and the gain $70,000. A different allocation changes the gain by $10,000 on one sale, so the file must show which allocation the client chose and when it was recorded.
Second example: the standing instruction
Section 5.02(5)(c) matters when a client sells before a global allocation is finished. In the revenue procedure's Example 4, a taxpayer with a global ordering rule sold two units from one wallet on March 1, 2025, and had identified the units by reference to specific unused basis before the allocation was complete. That identification was not a standing instruction, so it was not treated as sufficient. The taxpayer had to treat the two units with the earliest acquisition dates in that wallet as sold, and those carried unused basis of $1 per unit with a July 1, 2019 acquisition date.
For a client file, the lesson is simple: if a global allocation was incomplete at the first 2025 sale, look for a standing order to the broker or a standing instruction in the books. Without one, the sale defaults to the earliest units in that wallet.
Common errors
- Allocating previously identified and used basis. Basis already attached to a unit sold or transferred before 2025 cannot be allocated to remaining units (section 5.02(7)).
- Mismatched counts. The safe harbor allocates units of unused basis to a wallet or account that holds the same number of remaining units, so the totals must tie.
- Mixing asset types. Bitcoin and Ether are separate types; each is allocated on its own.
- Applying the safe harbor to units acquired on or after January 1, 2025. Section 4.01(2) excludes them.
- Assuming the safe harbor proves the amount of basis. Section 5.04 says it does not; the amount must be substantiated separately under section 6001.
- Changing the allocation later. It is irrevocable for all purposes of section 1012.
- Missing records. A taxpayer who makes a reasonable allocation but fails the section 4.02 record requirements cannot rely on the safe harbor and may face additional tax, penalties and interest (section 5.03).
Step checklist for the review
- List every wallet and account with balances at the close of December 31, 2024 ("as of January 1, 2025" means immediately after the close of the day on December 31, 2024).
- Build the schedule of units of unused basis: per-unit cost, acquisition date, asset type.
- Remove previously identified and used basis from the schedule.
- Confirm the allocation ties unit for unit to each wallet.
- Find the date the books first recorded the allocation and compare it with the first 2025 sale of the same asset type and the extended 2025 return due date.
- Trace each 2025 and 2026 sale to a wallet and a method.
Frequently asked questions
What if the client sold everything before 2025?
There is nothing to allocate. In the revenue procedure's Example 1, a taxpayer who sold all 30 units in December 2024 held no remaining units, so no allocation was permitted for those lots.
Does a disregarded entity get its own allocation?
No. Units and unused basis held by a disregarded entity are treated as held by its owner.
File checklist
- The Rev. Proc. 2024-28 allocation documentation: date made, method (specific or global) and the schedule of units of unused basis by wallet.
- A wallet and account inventory with balances at January 1, 2025.
- Acquisition ledgers for each unit, with date and cost.
- For 2025 and later sales: the wallet used, the units identified, and the method (specific identification or FIFO in that wallet).
- Reconciliation to broker reports, as described in Form 1099-DA broker reporting.
Sources
- Internal Revenue Service, Revenue Procedure 2024-28: https://www.irs.gov/pub/irs-drop/rp-24-28.pdf
- Internal Revenue Service, Digital assets: https://www.irs.gov/filing/digital-assets
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