Form 1099-DA Is Here—How It Will Impact Your Crypto Taxes

How Form 1099-DA Will Impact Your Crypto Taxes

It took the IRS four years to finalize its cryptocurrency regulations, but crypto tax reporting is here.

Starting with the 2025 tax year, custodial crypto platforms must report digital asset transactions on new IRS Form 1099-DA. The first Form 1099-DAs must be filed by March 31, 2026, if e-filing (March 2, 2026, if filed on paper).

Starting in 2026, custodial brokers must report the cost basis of digital assets, which will make it much easier for crypto owners to calculate their capital gains and losses and will make it easier for the IRS to determine whether crypto owners underreport their gains on their tax returns.

Here’s what you need to know now.

Tax Reporting by Custodial Brokers

The final IRS digital asset custodial regulations apply to digital asset brokers1 who take custody (possession) of the digital assets that are exchanged by their customers.

The majority of crypto transactions use these brokers. These include the following:2

• Operators of centralized digital asset trading platforms. These include Coinbase, Bybit, and Binance—when a user buys or sells crypto on these exchanges, the platform holds the private keys and effectively acts as a custodian.

• Hosted wallet providers. Also known as “custodial wallets,” these act like a bank account for crypto.

• Digital asset kiosks. These are physical electronic terminals or kiosks that accept crypto in return for cash, stored-value cards, or different digital assets.

• Processors of digital asset payments (PDAPs). PDAPs enable buyers to make payments to second parties (typically merchants) using crypto. Examples include BitPay and Coinbase Commerce. Reporting by PDAPs is required only if they take possession of the digital assets that constitute the payment, and if the buyer allows the PDAP to verify its identity or otherwise complies with anti-money laundering program requirements.

• Real estate brokers. Real estate brokers and other real estate professionals involved in real estate transactions where crypto is used as payment get an extra year and will have to report starting with the 2026 tax year.

The regulations do not include reporting requirements for brokers that do not take possession of the crypto being sold or exchanged—commonly known as “decentralized” or “non-custodial” brokers (see below). Also not covered by these regulations are non-U.S. brokers (other than foreign partnerships controlled by U.S. persons).

Digital Assets That Are Subject to Reporting

Digital assets are broadly defined by the reporting regulations to cover various types of assets that are recorded on a distributed ledger via cryptography. These include the following:3

• Cryptocurrency. The best-known forms of crypto are Bitcoin (BTC) and Ether (ETH), but there are thousands of cryptocurrencies.

• Stablecoins. These are pegged to a government currency, such as the U.S. dollar. Brokers are required to report sales of stablecoins only if aggregate annual sales exceed $10,000.

• NFTs. Non-fungible tokens, or NFTs, are digital assets that represent ownership of a unique digital item such as art, music, or videos on the blockchain. Reporting is required only if the customer receives $600 or more in gross proceeds from the sale of NFTs.

Transactions Subject to the Custodial Reporting Rules

The reporting rules apply to taxable sales and exchanges of digital assets that are conducted through custodial brokers on or after January 1, 2025. This includes exchanges of digital assets for4

• cash and cash equivalents such as checks, credit cards, and debit cards;

• good or services;

• another digital asset;

• a stored-value card;

• broker services;

• securities; and

• real estate (starting in 2026).

Routine retail purchases. If you sign up with a PDAP like BitPay for routine retail purchases, such as buying coffee at shops not directly accepting crypto, the processor is required to report your transactions only if they total $600 or more in a year.5

Exempt transactions. Until the IRS issues further guidance, custodial digital asset brokers will not have to report the following six types of transactions:6

1. Wrapping (converting crypto into a token on another blockchain) and unwrapping (converting the wrapped token back to its original crypto form)

2. Liquidity provider transactions

3. Staking (locking up cryptocurrency to support a blockchain network’s operation)

4. Certain transactions involving lending of digital assets

5. Short sales of digital assets

6. Notional principal contract transactions

All of the excluded transactions present substantial challenges for tax reporting by brokers.

Information That Must Be Reported to the IRS

The following information must be reported to the IRS by brokers for the sale of digital assets:7

• The customer’s name, address, and taxpayer identification number

• The name and number of units of the digital asset sold

• The sale date

• The gross proceeds amount,

• Whether the sale was for cash, for stored-value cards, or in exchange for services or other property

• The date on which a unit of digital assets was previously transferred into an account with the broker (transferred-in digital asset), if applicable, as well as the number of units transferred by the customer for each such sale of a digital asset held by the broker in a hosted wallet on behalf of the customer

This information will be reported on new Form 1099-DA, Digital Asset Proceeds From Broker Transactions, the first tax form designed specifically for digital assets. The first Form 1099-DAs, covering the 2025 tax year, must be filed by March 31, 2026.

Brokers need only report gross proceeds for transactions effected January 1, 2025, through December 31, 2025. Gross proceeds are the total amount you receive from selling or exchanging crypto, before accounting for any costs or fees. For example, if you sell one Bitcoin for $85,000, $85,000 would be your gross proceeds—even if you originally paid $50,000 for the Bitcoin or incurred a fee for the sale.

Starting January 1, 2026, in addition to gross proceeds, brokers will also have to report the customer’s cost basis. Cost basis is the original value of the crypto when acquired by the customer plus any associated costs like fees.8 For example, if you purchased one Bitcoin for $85,500 and paid a $500 transaction fee, your cost basis would be $86,000.

To calculate gains and losses, you subtract cost basis from gross proceeds.

Calculating Basis for Digital Assets

When you buy the same form of crypto such as Bitcoin at different times with different price points, you create multiple cost basis lots for that crypto. When you trade or sell your crypto, your profit or loss depends on which of these cost basis lots is deemed to be used in the sale.

Your accounting method determines the order in which you dispose of your crypto lots for tax purposes. The default accounting method is FIFO—first in, first out. In other words, the first crypto unit you purchase is the first that is counted for a sale.9 In a period of rising prices, using FIFO will result in the largest gains since the crypto you acquired first will be the units with the smallest tax basis. The opposite is true in a time of falling prices.

An alternative to FIFO that can minimize the tax due on crypto transfers is the specific identification method. With this method, crypto owners identify each crypto unit they transfer. Before the custodial regulations took effect in 2025, crypto owners typically implemented specific identification by assigning basis to all their crypto at year-end with crypto tracking software. IRS regulations and FAQs did not specifically disallow this practice, so crypto owners went with it.

The final custodial regulations drastically change how specific identification must be implemented by crypto owners. To use specific identification and avoid the FIFO default, specific identification must be provided at or prior to the time of sale. Crypto owners can adequately identify the crypto units transferred by10

• providing the broker with any reasonable identifier, such as date and time or purchase price; or

• implementing a standing order or instruction with the broker.

If a broker allows only one method of making a specific identification—for example, by the earliest date on which units of the same digital asset were acquired, the latest date on which units of the same digital asset were acquired, or the highest basis—this method is treated as a standing order.

Not all brokers were technically able to support customer requests for specific identification of crypto units being sold during 2025. To aid the transition to the new rules, the IRS implemented a relief rule for 2025 only. During 2025, if your broker is unable to take and process your specific identification instructions, you can do it yourself in your own books and records without informing your broker.11

The IRS gives crypto sellers two options for 2025:12

• make an identification and keep a record of it for each individual sale throughout the year, or

• set up your own standing order in your records that applies to a custodial account for every sale during the year—for example, always sell the highest cost basis first (highest in first out, or HIFO), or always sell the last crypto unit received first (last in first out, or LIFO).

If you do neither, the FIFO default method will apply to the account.

Brokers will need to be fully capable of accepting and processing detailed specific identification instructions by January 1, 2026. On that date, the relief ceases and the stricter identification rules apply.

You should use specialized crypto accounting software to implement your accounting method and track your crypto basis.

Single Wallet Approach for Basis Tracking

Crypto owners often hold assets across multiple exchanges or wallets and frequently transfer their crypto between them. For years, they used a universal or multi-wallet approach in which they treated all their crypto as being held in a single account or wallet even if they were actually held in multiple wallets or broker accounts. This simplified basis tracking: you could calculate the cost basis without worrying about where the crypto was stored.

The final custodial regulations put a stop to this universal method. Instead, the regs mandate a wallet-by-wallet approach for calculating tax basis—that is, the basis for each crypto unit must be determined within the wallet or account from which the crypto was transferred.13 You can no longer treat all your crypto as a single wallet or group.

Crypto owners who had crypto in multiple wallets or accounts as of January 1, 2025, must allocate their unused basis to the specific accounts (wallets/exchanges) they hold their crypto in. They may use any reasonable method of allocation. The IRS provides two safe harbor methods:14

• Specific unit allocation. Assign unused cost bases to specific crypto in a wallet. This requires detailed record keeping.

• Global allocation. Spread the unused cost bases evenly across all assets in the wallet by applying a consistent accounting rule. For example, you could allocate the highest cost basis first, the lowest cost basis first, or allocate basis proportionally based on the amount of crypto in each wallet. This is simpler to do.

Originally this allocation was supposed to be done by January 1, 2025, but due to widespread confusion, the deadline was extended to December 31, 2025. You must complete your allocation of unused basis before you can take advantage of the specific identification safe harbor for 2025 discussed above.15

IRS Reporting Regulations for Decentralized Finance (DeFi) Transactions Rescinded

The final custodial regulations do not impose reporting requirements on participants in crypto transactions that do not take possession of the digital assets being sold or exchanged.

These include unhosted digital asset wallet providers and decentralized finance exchanges (DeFi). Unhosted wallet providers only provide the software for consumers to hold and transfer digital assets. DeFi platforms use software to link crypto buyers and sellers directly rather than routing their orders through custodial platforms like Coinbase.

In the waning days of the Biden administration, the IRS issued final regulations imposing reporting requirements for some DeFi transactions.16 These regulations applied to entities like Uniswap offering “trading front-end services” or other “effectuating services,” such as graphical user interfaces enabling users to interact with trading protocols.

These regulations were supposed to take effect in 2027. But this is not going to happen.

After widespread complaints, Congress passed and President Trump signed into law a joint resolution disapproving the DeFi regulations. The Treasury Department formally rescinded the DeFi regulations in July 2025. The resolution was passed under the Congressional Review Act, which means that the IRS can’t issue new, substantially similar regulations to replace the repealed ones without first going through Congress.

Thus, for the foreseeable future, there will be no IRS reporting requirements for DeFi transactions.

Takeaways

Here are five takeaways from this article:

1. Starting this year (2025), sellers of cryptocurrency will have some of their transactions reported to the IRS on new Form 1099-DA, Digital Asset Proceeds From Broker Transactions.

2. The reporting requirements apply to sales and other transfers made through digital asset brokers that take custody of the crypto exchanged by their customers, including operators of centralized digital asset trading platforms like Coinbase and hosted wallet providers.

3. Brokers must provide, on Form 1099-DA, customers’ identifying information and the gross proceeds received. Starting with the 2026 tax year, they must also report the customer’s cost basis in the crypto.

4. The regulations also implement rules on the accounting method used by crypto owners to determine the basis of their crypto units. FIFO is the default method unless the owner uses specific identification. Transitional rules apply for 2025 to enable owners to use specific identification within their own records without informing their brokers.

5. The final regulations also mandate that those who own crypto across multiple wallets or exchanges track the basis of their crypto on a wallet-by-wallet basis. They can no longer treat all their crypto as being held in a single wallet or account.

   
   

Form 1099-DA Is Here—How It Will Impact Your Crypto Taxes

1    Reg. Section 1.6045-1(a)(1).

2    Preamble, Reg. Section 1.6045-1, Section 1.B.1., 2, 89 Fed. Reg. 56491 (July 9, 2024).

3    Reg. Sections 1.6045-1(a)(19), 1.6045-1(b)(1), Example 1.

4    Reg. Section 1.6045-1(a)(9)(ii).

5    Reg. Section 1.6045-1(d)(2)(i)(C).

6    IRS Notice 2024-57.

7    Reg. Section 1.6045-1(d)(2)(i)(B).

8    Reg. Section 1.6045-1(d)(2)(ii).

9    Reg. Section 1.1012-1(j)(3)(i).

10    Reg. Section 1.1012-1(j)(3)(ii).

11    IRS Notice 2025-7.

12    Ibid.

13    Reg. Section 1.1012-1(j)(1); Rev. Proc. 2024-28.

14    Rev. Proc. 2024-28.

15    IRS Notice 2025-7.

16    “Gross Proceeds Reporting by Brokers That Regularly Provide Services Effectuating Digital Asset Sales,” 89 Fed. Reg. 106928 (December 30, 2024).

Thank you Bradford Tax Institute