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Switching to Per-Wallet tracking after missing IRS Safe Harbor

This article applies to US customers only.

If you're a US taxpayer and didn't switch to Per-Wallet tracking before Jan 1, 2025, you’ve missed the IRS safe harbor. However, you can still take action to stay compliant with your upcoming tax filings.

  • The IRS provides safe harbor protections for those who migrate from Universal to Per-Wallet tracking, ensuring your tax lot allocations won't be recalculated if audited. To qualify, customers must have selected their Tax Lot Allocation Method in CoinTracker before Jan 1, 2025.
  • Starting Jan 1, 2025, US taxpayers must switch from Universal to Per-Wallet tracking to comply with regulatory changes. This change impacts historical filings, so CoinTracker has introduced a Tax Lot Allocation Method to define how your universal tax lots will be allocated to specific wallets and tracked on a per-wallet basis moving forward.

Steps to switch to Per-Wallet tracking

Even if you miss the IRS safe harbor, you must still migrate from Universal to Per-Wallet tracking to stay compliant with IRS rules starting in 2025. The safe harbor prevents your cost basis from being recalculated by the IRS using a different tax lot allocation method, but migration is still required. 

There are two available options for your Tax Lot Allocation Method:

  • Highest Cost, First Received: This method will allocate your highest cost basis tax lots to your oldest purchased lots of the same coin (i.e., you cannot allocate ETH basis to BTC units).
  • Highest Cost, Last Received: This method will allocate your highest cost basis tax lots to your newest purchased lots of the same coin (i.e., you cannot allocate ETH basis to BTC units).
Follow these steps to switch your Tax Lot Allocation Method:

Step 1: Select a Tax Lot Allocation Method

  1. Navigate to the Tax settings page. 
  2. Select a Tax Lot Allocation Method. (You will only see this setting if you're a US customer with cost basis tracking set to Universal.)
  3. At this point, you should see the following banner on your account to start the migration process:

Continue with the remaining steps before selecting Migrate now in this banner.

Step 2: Fully reconcile your CoinTracker account

Regardless of which method you select, you must ensure your crypto tax portfolio is fully reconciled and updated through the end of 2024 (as if you were getting ready to print your final 2024 crypto tax reports to use for tax filing). This means that you should:

  • Connect any additional exchanges or wallets necessary to have a complete transaction history through 2024.
  • Ensure there are no Review suggested transactions remaining. Once you've made the allocation, you cannot go back to fix any issues.
  • Review your 2024 tax reports for gaps in your data. You may need to renew your subscription plan to access your tax reports for 2024.

Remember to keep your cost basis tracking method consistent with what you have used in the past, manually switching your tax settings from Universal to Per-Wallet at this point would significantly change your reports and increase your audit risk.

Step 3: Migrate to Per-Wallet tracking

Migrate to Per-Wallet tracking and generate a tax lot snapshot and tax allocation report of your holdings.

Note: Do not manually change your cost basis method to Per-Wallet. Doing so changes your past tax year's numbers. To start the migration, sign in to CoinTracker and select Migrate now in the banner notification.

  • Behind the scenes, CoinTracker reallocates your unsold lots from your Universal pool to specific wallets.
  • Important: After you select Migrate now, CoinTracker locks all your data prior to 2025. You won't be able to edit pre-2025 transactions or tax reports afterward. 
  • Your tax lot allocation and snapshot reports will be generated. A copy will be automatically downloaded, and a second copy will be sent to you via email. Your account will also automatically switch to Per-Wallet tracking.
  • Make sure to maintain all reports within your records. CoinTracker cannot save these reports for you, it is your responsibility to make sure that you keep all reports provided to you indefinitely.

Disclaimer: CoinTracker is provided for informational purposes and is not intended as tax, audit, accounting, investment, financial, or legal advice. For financial, tax, or legal advice, please consult your own professional. See our full disclaimer.

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