New IRS Reporting Rules for Crypto Investors: What You Need to Know
Summary:
Starting in 2025, the IRS will enforce stricter reporting requirements for cryptocurrency transactions, aiming to increase compliance among crypto investors. Centralized exchanges like Coinbase will be required to issue Form 1099 DA to investors and the IRS, detailing their trading activities. This move addresses the low voluntary compliance rate of 25% identified in a 2023 IRS review. While the new rules enhance transparency, investors must still calculate gains and losses for certain transactions not covered by the form.
What This Means for You:
- Prepare for Enhanced IRS Scrutiny: Ensure your tax return matches the details on Form 1099 DA to avoid audits or penalties.
- Track Cost Basis Manually: Exchanges will not report cost basis for assets purchased before 2026, so keep detailed records of your transactions.
- Understand Exclusions: Certain transactions, like stablecoin sales under $10,000 or NFT sales below $600, won’t appear on Form 1099 DA but must still be reported.
- Plan for Future Changes: Starting in 2026, exchanges will report cost basis for assets purchased on or after January 1, 2026, streamlining tax reporting.
Original Post:
Crypto investors will face tighter scrutiny in 2025 as new IRS reporting rules take effect, marking a major shift for an industry long plagued by low voluntary compliance. An IRS review from 2023 found “the potential for” only a 25 percent compliance rate, suggesting that roughly one quarter of crypto users have been meeting their tax obligations.
That number is expected to rise because centralized crypto exchanges must now report investor activity to the IRS. Anyone who sold or exchanged digital assets this year on platforms such as Coinbase will receive Form 1099 DA. The exchange will also send the form directly to the IRS. Copies must be issued to investors by February 17, 2026 for the 2025 tax filing season.
The new reporting requirement does not create additional taxes, but it gives the IRS greater visibility. If a taxpayer’s return does not match what appears on the 1099 DA, the agency’s Automated Underreporter system may flag the difference and issue a notice, said Shehan Chandrasekera, head of tax strategy at CoinTracker.
The system may also benefit filers. “The 1099, while it increases compliance, also makes life a lot easier for those who need to report on their investments,” said Tomer Siegal, vice president of product at Ledgible.
Some transactions, however, are not included on the 1099 DA. Exchanges are only required to report gross proceeds, not cost basis, in 2025. Investors must calculate their own gains and losses. Beginning in 2026, exchanges will report cost basis only for assets purchased on or after January 1, 2026, and only when both the purchase and sale occur on the same platform without transfers, Siegal said.
Certain sales are also excluded from the new form. central exchanges do not need to report qualified stablecoin sales under 10,000 dollars, NFT sales below 600 dollars, or transfers involving wrapped tokens. All of these transactions must still be reported by taxpayers on their returns.
Crypto ETFs are covered under existing brokerage rules. Sales of bitcoin or ethereum ETFs will appear on Form 1099 B, which is used for stocks, bonds and derivatives.
Decentralized exchanges remain outside third party reporting. Investors trading on defi platforms will not receive a 1099 DA, and a rule requiring those platforms to start issuing forms in 2027 was repealed earlier this year. Taxpayers must still report all taxable defi activity on their returns.
Despite differing forms, the treatment of gains and losses remains consistent across asset classes. Losses can offset gains, and up to 3,000 dollars of remaining losses can be deducted from ordinary income each year. Excess losses can be carried forward indefinitely. Losses in one asset class, such as stocks, can also offset gains in another, including crypto, Chandrasekera said.
As the reporting overhaul takes hold, tax professionals expect compliance to rise sharply, reducing the long standing information gap between crypto transactions and the IRS.
Related Readings:
Extra Information:
For further insights, check out these resources: IRS Crypto Tax Guidance and CoinTracker Tax Strategies. These links provide comprehensive details on cryptocurrency tax reporting and best practices for compliance.
People Also Ask About:
- What is Form 1099 DA?: It’s a new IRS form detailing crypto transaction activity reported by centralized exchanges.
- Do I need to report NFT sales?: Yes, NFT sales below $600 are excluded from Form 1099 DA but must still be reported on your tax return.
- How are decentralized exchanges affected?: Decentralized exchanges are exempt from reporting requirements until at least 2027.
- Can crypto losses offset stock gains?: Yes, crypto losses can offset gains in other asset classes like stocks.
- What happens if I don’t report crypto transactions?: Failure to report can result in penalties, audits, or other IRS actions.
Expert Opinion:
According to tax experts, the IRS’s new reporting rules represent a significant step toward closing the “crypto tax gap.” However, investors must take proactive steps to ensure compliance, especially for transactions not covered by Form 1099 DA.
Key Terms:
- Crypto tax reporting 2025
- IRS Form 1099 DA
- Crypto transaction compliance
- Cost basis tracking for crypto
- Decentralized exchange tax rules
- Crypto ETF tax reporting
- IRS Automated Underreporter system
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