After four years of work, the IRS has finalized its cryptocurrency regulations, and crypto tax reporting now begins. Starting with the 2025 tax year, custodial crypto platforms must report taxable crypto transactions directly to the IRS.
“Digital asset brokers” must handle this reporting when they take custody of the digital assets their customers sell or exchange. These brokers include:
· operators of centralized trading platforms such as Coinbase, Kraken, and Binance; and
· hosted wallet providers (also called “custodial wallets”).
Most crypto transactions run through these brokers.
Brokers must file the new IRS Form 1099-DA, Digital Asset Proceeds From Broker Transactions. This form reports the following:
· Customer’s name, address, and taxpayer identification number
· Name and quantity of the digital asset sold
· Sale date
· Gross proceeds amount
Brokers must file the first Forms 1099-DA for the 2025 tax year by March 31, 2026. This is very close to the due date for the 2025 return. Taxpayers may want to consider filing an extension if they will need time to calculate the basis and the resulting gain or loss to report. Most preparers – including me – likely will insist on an extension for their client if they had taxable crypto transactions during 2025.
For 2025 only, brokers must report gross proceeds from sales or other transfers. Gross proceeds represent the total amount you receive when you sell or exchange crypto, before any fees or other costs. Beginning in 2026, brokers must also report the customer’s cost basis—the crypto’s acquisition cost plus any associated costs. Providing the cost basis on the form will expedite the reporting process for tax returns.
With Form 1099-DA in place, you will find it easier to calculate your crypto gains and losses when you file your return.
The regulations also establish rules for how crypto owners determine the basis of their crypto units. FIFO (first-in, first-out) is the default method. During periods of rising prices, FIFO typically produces the most significant taxable gains because it uses your earliest—and often lowest-basis—units first.
If you want to reduce tax on crypto transfers, you can use the specific identification method instead. This method allows you to identify the exact units you transfer. Transitional rules for 2025 will enable you to use specific identification in your own records without notifying your broker. This is an area that will require additional guidance. I expect brokers will use the FIFO default method for reporting basis beginning with the 2026 Forms 1099-DA. If the investor elects to use specific identification, will the broker use that same method? I have no clue at this point how that might work.
The final regulations also require crypto owners to track basis on a wallet-by-wallet basis when they hold crypto across multiple wallets or exchanges. You may no longer treat all your crypto as if it sits in a single wallet or account. If you had crypto in multiple wallets or exchanges on January 1, 2025, you must allocate your unused basis to the specific accounts where you hold each asset.
To illustrate, you may own Chevron stock through two investment brokers – Merrill Lynch and Schwab. The basis for the stock held by these two brokers will likely differ if the stock was acquired at different times. The same scenario applies if an investor holds crypto (such as Bitcoin) across multiple wallets.