IRS Gives Crypto Investors One More Year to Pick Their Tax Basis

The IRS has quietly extended a crucial deadline for cryptocurrency investors to choose which coins they sold and at what price, affecting their tax bill. The new deadline is December 31, 2026.

This decision can make a significant difference in the thousands of dollars a taxpayer owes in taxes. For example, selling 0.2 Bitcoin on the same day at the same price can result in either a $16,619 gain or a $6,073 loss.

The rule behind this is the digital-asset specific identification provision in Treasury Regulation §1.1012-1(j), which falls under Internal Revenue Code Section 1012. The regulation requires taxpayers to identify the specific units of cryptocurrency they sold, and if not done so, defaults to first-in-first-out (FIFO) method.

A composite investor's situation illustrates this: a 66-year-old married retiree holding Bitcoin in an exchange account bought 0.2 BTC on October 2, 2016, at $610.93 and another 0.2 BTC on September 30, 2025, at $114,067.71. Selling 0.2 BTC today would result in a long-term gain of $16,618.56 under FIFO, but a short-term loss of $6,072.79 if specific units are identified.

The relief granted by Notice 2026-20 allows taxpayers to keep standing identification instructions for coins held at brokers through the end of 2026. After this date, they will need to provide these instructions directly to their broker or exchange.