f you buy, sell or trade digital assets, such as cryptocurrency or certain nonfungible tokens (NFTs), new reporting requirements will likely affect how your transactions are reported to and reviewed by the IRS. While these rules don't change how digital assets are taxed, they significantly impact information reporting, increasing transparency and scrutiny.
Tax treatment
For tax purposes, the IRS continues to treat digital assets as property, not currency. This means you must recognize a capital gain or loss when you sell, exchange or otherwise dispose of a digital asset.
The gain or loss is generally the difference between your cost basis (what you paid for the asset) and the amount you receive upon disposal. Depending on whether you held the asset more than one year, the gain or loss may be short-term or long-term.
What investors should know
To facilitate reporting, the IRS created Form 1099-DA, ''Digital Asset Proceeds From Broker Transactions.'' This form is designed specifically for digital assets and is now used by brokers - including many cryptocurrency exchanges and digital asset platforms - to report transaction activity directly to investors and the IRS.
Initially, Form 1099-DA is being used by brokers to report gross proceeds from the sale or exchange of digital assets occurring on or after January 1, 2025. Beginning with transactions on or after January 1, 2026, Form 1099-DA will also require brokers to report the adjusted basis of certain digital assets.
For investors, this means a couple of things:
- Starting with the 2025 tax year, you're likely to receive Form 1099-DA for reportable digital asset transactions.
- The IRS will receive the same information, making mismatches between reported income and tax returns more likely to trigger notices.
Accurate recordkeeping remains essential, particularly for tracking cost basis. Decentralized Finance (DeFi) brokers and some foreign brokers aren't required to issue Form 1099-DA or report transactions to the IRS. As a result, you're responsible for understanding and reporting your digital asset tax obligations, even if you don't receive a reporting statement covering all activity.
Enforcement shift
Digital asset taxation has been in place for years, but the new reporting rules mark a notable shift in enforcement. Contact us and we can help you understand your reporting obligations and stay in compliance.