IRS Rev. Proc. 2024-28: The New Per-Wallet Tax Rule
The landscape of U.S. cryptocurrency taxation is undergoing its most significant structural change in years. Starting January 1, 2025, the long-standing practice of "universal" cost basis tracking will no longer be permitted. This change, mandated by IRS Revenue Procedure 2024-28, requires all crypto investors to adopt a "per-wallet" or "account-by-account" method for calculating capital gains and losses, fundamentally altering how transactions are reported.
The End of an Era: Universal Cost Basis Tracking is Over
For years, many crypto investors and tax software platforms simplified their record-keeping by using a universal cost basis method. This approach pooled all units of a specific cryptocurrency, like Bitcoin or Ethereum, into a single inventory, regardless of which exchange or wallet they were held in. When an asset was sold from one exchange, the cost basis could be pulled from a purchase made on a completely different exchange.
While convenient, this method created a disconnect between an investor's records and the records held by individual exchanges. As the crypto industry matures and regulatory oversight increases, this discrepancy has become untenable for the IRS, especially with the impending rollout of new broker reporting requirements.
As of tax year 2025 (the return you file in 2026), the universal method is officially obsolete. All U.S. taxpayers must transition to a system that tracks the basis of assets within the specific wallet or account where they are held.
What is IRS Revenue Procedure 2024-28?
Issued in mid-2024, IRS Revenue Procedure 2024-28 is the official guidance that outlines the mandatory transition from universal to per-wallet cost basis tracking irs.gov. Its primary purpose is to provide a clear framework and a "safe harbor" for taxpayers to re-allocate their existing cost basis records to individual wallets and accounts by the January 1, 2025 deadline.
This procedure is a direct consequence of the Infrastructure Investment and Jobs Act of 2021, which expanded the definition of "broker" to include cryptocurrency exchanges and mandated new reporting requirements. The move to per-wallet tracking is essential to align taxpayer reporting with the transaction data brokers will soon report to the IRS on the new Form 1099-DA.
In short, Rev. Proc. 2024-28 provides the rules for a one-time, permanent "snapshot" of your crypto holdings, assigning a specific cost basis to the assets in each of your accounts as of the end of December 31, 2024.
Universal vs. Per-Wallet Tracking: A Side-by-Side Comparison
The difference between these two methods can have a dramatic impact on your calculated gains and losses. Under the universal method, you could always use the most advantageous cost basis (e.g., the earliest purchase under FIFO) regardless of where the sale took place. Under the per-wallet method, your choices are restricted to the lots held within the selling wallet.
Let's illustrate with an example using the First-In, First-Out (FIFO) accounting method:
- July 1: You buy 1 BTC for $30,000 on Exchange A.
- August 1: You buy 1 BTC for $40,000 on Exchange B.
- September 1: You sell 1 BTC for $50,000 from Exchange B.
| Feature | Universal Tracking (Old Method) | Per-Wallet Tracking (New Mandate) |
|---|---|---|
| Asset Pool | All BTC is treated as one pool across all exchanges. | Each exchange (A and B) is a separate pool. |
| Cost Basis Used | The first BTC purchased is from Exchange A ($30,000). | The only BTC available in the selling account (Exchange B) was purchased for $40,000. |
| Capital Gain | $50,000 (Sale) - $30,000 (Basis) = $20,000 | $50,000 (Sale) - $40,000 (Basis) = $10,000 |
| Remaining Basis | The $40,000 basis from the Exchange B purchase remains. | The $30,000 basis from the Exchange A purchase remains. |
As the table shows, the mandatory switch to per-wallet tracking changes the taxable gain in this scenario by $10,000. This highlights the critical importance of correctly transitioning your records.
The Account-by-Account Rule Explained
The core principle behind Rev. Proc. 2024-28 is the "account-by-account" rule, which is rooted in Section 1012(c)(1) of the Internal Revenue Code. This section has long required that the cost basis of specified securities (which now includes digital assets) be determined on an account-by-account basis. The foundation for treating these assets as property — which is what subjects them to basis-tracking rules — was first established for convertible virtual currency by IRS Notice 2014-21 and extended through subsequent IRS guidance to the broader digital-asset class.
Think of each of your crypto accounts—whether on Coinbase, Kraken, or a self-custody wallet like Ledger—as a separate, walled-off silo. The assets and their associated cost bases inside one silo cannot be mixed with or used for transactions occurring in another silo.
When you sell an asset from your Coinbase account, you can only use the cost basis of lots that are also held within that same Coinbase account. You can no longer "reach into" your Kraken silo to pull a more favorable cost basis for a sale on Coinbase. This segregation is designed to create a clear, auditable trail for every transaction that aligns with what your broker will report to the IRS.
This segregation applies to all digital asset accounts, including:
- Accounts at centralized exchanges (brokers)
- Self-custody hardware wallets
- Software or hot wallets
- Specific addresses on a blockchain that you control
Transitioning to Per-Wallet Tracking: The Safe Harbor Allocation Methods
To help taxpayers make this one-time transition, Rev. Proc. 2024-28 provides a "safe harbor" with two distinct allocation methods. Following one of these methods for your January 1, 2025, snapshot ensures the IRS will not challenge your historical basis calculations or the method used for the transition.
Once you make this allocation, it is permanent and cannot be changed.
1. Specific Unit Allocation Method
This is the most precise but also the most complex method. It requires you to have meticulous records that allow you to trace specific units of a cryptocurrency from their original purchase to the wallet they reside in on December 31, 2024.
You must be able to specifically identify which purchase lots (e.g., the 0.5 ETH bought on May 10, 2022) correspond to the units held in each specific wallet. This requires a complete and unbroken transaction history. If you can successfully do this, you can assign the original acquisition cost and date to those units in their respective wallets.
2. Global Allocation Method
This method is for taxpayers who cannot meet the stringent record-keeping requirements of the Specific Unit method. The Global Allocation method is a simpler, formula-based approach.
Here's how it works:
- Calculate Total Unused Basis: Sum the cost basis of all unsold units of a specific crypto (e.g., all your BTC) across all your wallets.
- Calculate Average Basis: Divide the total unused basis by the total number of units you hold. This gives you an average cost per unit.
- Allocate Pro-Rata: Assign this average basis to all units of that crypto, regardless of which wallet they are in. All units will now share the same acquisition date, which is the date of the allocation.
While simpler, this method eliminates the ability to use specific acquisition dates for long-term vs. short-term gain considerations for these transitioned assets.
How to Use Specific Identification Under the New Per-Wallet Rules
The move to per-wallet tracking does not eliminate the ability to use tax-optimization strategies like Specific Identification (Spec ID). However, it does add a new constraint.
Specific Identification allows you to choose which lot to sell to achieve a desired tax outcome (e.g., selling a high-cost lot to harvest a loss or a lot held over a year for long-term capital gains).
Starting in 2025, you can still use Spec ID, but your choice is limited to the lots available within the same wallet or account from which you are selling.
To properly use Spec ID, the IRS requires you to unambiguously identify the specific units being sold and maintain records showing irs.gov:
- The date and time each unit was acquired.
- Your basis and the fair market value of each unit at acquisition.
- The date and time each unit was sold or disposed of.
- The fair market value and proceeds received for each unit.
Connecting the Dots: Per-Wallet Tracking and Form 1099-DA Reporting
The primary driver for this entire shift is the upcoming broker reporting on Form 1099-DA. Beginning with tax year 2025, crypto exchanges will be required to issue this form to both you and the IRS, detailing your gross proceeds from digital asset sales. The direction of this reporting regime is consistent with recommendations in GAO Report 20-188 (March 2020), which found that additional information reporting and clarified guidance could improve tax compliance for virtual currencies.
Because exchanges only have visibility into the transactions that occur on their own platform, they will report gains and losses on an account-by-account basis. The per-wallet mandate forces taxpayers to align their own calculation methodology with what the brokers will report.
This alignment is crucial for avoiding tax discrepancies. If your self-reported gains don't match the information the IRS receives from your exchange on a Form 1099-DA, it could trigger an automated notice or an audit. Adopting the per-wallet method now is the best way to ensure a smooth and compliant tax filing experience in the years to come.
How to Prepare for the Per-Wallet Mandate
The January 1, 2025, deadline is approaching quickly. Proactive preparation is key to ensuring a compliant and stress-free transition.
- Inventory Your Accounts: Make a comprehensive list of every cryptocurrency exchange, wallet, and platform you have ever used.
- Aggregate Your Data: Gather your complete transaction history from all sources. This includes trades, transfers, staking rewards, airdrops, and fees.
- Choose Your Allocation Method: Review your records. If you can trace every asset from purchase to its current wallet, you may be able to use the Specific Unit Allocation method. If not, you will likely need to use the Global Allocation method.
- Select a Compliant Tool: The complexity of per-wallet tracking makes manual calculation nearly impossible for most investors. Use a crypto tax software platform that explicitly supports Rev. Proc. 2024-28 and the per-wallet methodology.
- Perform the Snapshot: Before year-end, use your chosen software to perform the basis allocation and generate the required snapshot report for your records.
Automate Your Compliance with dTax
The new regulations under Rev. Proc. 2024-28 introduce significant complexity into crypto tax reporting. Manually tracking basis across dozens of wallets while adhering to the account-by-account rule is a monumental task prone to costly errors.
This is where dTax can help. Our platform is engineered to handle the new per-wallet mandate seamlessly. dTax automatically segregates your transactions by wallet, maintains a compliant audit trail, and helps you generate the necessary reports for the one-time basis allocation. Instead of wrestling with spreadsheets, you can focus on your investment strategy, confident that your tax reporting is built on a compliant foundation.
Ready to navigate the new era of crypto taxes with confidence? Start automating your crypto taxes with dTax.
Frequently Asked Questions
What happens if I don't switch to per-wallet tracking?
Failing to adopt the mandatory per-wallet tracking method starting January 1, 2025, will result in non-compliant tax reporting. This could lead to significant discrepancies between your tax return and the Form 1099-DA filed by your exchange, likely triggering IRS notices, penalties, and potential audits. You would also lose the "safe harbor" protection, meaning the IRS could challenge your historical cost basis calculations.
Can I still use FIFO, LIFO, or HIFO with per-wallet tracking?
Yes, you can still use various accounting methods like First-In, First-Out (FIFO), Last-In, First-Out (LIFO), or Highest-In, First-Out (HIFO) for tax optimization. However, these methods must now be applied on a per-wallet basis. For example, when applying FIFO to a sale from your Kraken account, the "first-in" lot must be the earliest purchase made within that Kraken account, not your overall earliest purchase across all platforms.
Does the per-wallet rule apply to my self-custody wallets?
Yes. The account-by-account rule applies to all digital assets you control, regardless of where they are held. This includes accounts on centralized exchanges as well as self-custody wallets (both hardware and software). You must treat each wallet as a separate "silo" with its own distinct set of cost basis lots. Transfers between your own wallets are generally non-taxable events, but you must ensure the cost basis of the transferred assets moves with them to the new wallet.