The world of cryptocurrency has long existed in a gray area when it comes to tax reporting. That era is officially over.

After four years of regulatory development, the IRS has finalized its cryptocurrency reporting framework. Beginning with the 2025 tax year, a new form—IRS Form 1099-DA (Digital Asset Proceeds From Broker Transactions)—will fundamentally change how crypto transactions are reported, tracked, and taxed.

If you trade, invest, or accept payments in digital assets, these rules will directly affect you. Here’s a clear, professional breakdown of what’s changing—and how to prepare.

 What Is Form 1099-DA?

Form 1099-DA is the IRS’s first tax form designed specifically for digital assets. Starting in 2025, custodial crypto brokers must report customers’ taxable digital asset transactions to the IRS.

• First reporting year: 2025

• First filing deadline: March 31, 2026 (e-filed)

• Who files it: Custodial crypto brokers

This form signals a major step toward closing the crypto tax compliance gap.

 Which Crypto Platforms Must Report?

The rules apply to custodial digital asset brokers—platforms that take possession of users’ crypto assets. These include:

• Centralized crypto exchanges (e.g., Coinbase, Binance, Bybit)

• Hosted (custodial) crypto wallet providers

• Crypto ATMs and kiosks

• Payment processors that handle crypto payments (such as BitPay)

• Certain real estate brokers when crypto is used as payment (starting in 2026)

 Who Is Exempt?

• Non-custodial (decentralized) wallets

• DeFi platforms

• Brokers that never take possession of crypto

• Non-U.S. brokers (with limited exceptions)

If you control your private keys, these reporting rules generally do not apply.

Digital Assets Covered by Form 1099-DA

The IRS defines digital assets broadly. Covered assets include:

• Cryptocurrencies (Bitcoin, Ethereum, and thousands more)

• Stablecoins (reportable if annual sales exceed $10,000)

• NFTs (reportable if gross proceeds exceed $600)

If it’s recorded on a blockchain and traded through a custodial broker, it’s likely reportable.

Transactions That Trigger Reporting

Form 1099-DA applies to taxable digital asset transactions conducted on or after January 1, 2025, including:

• Selling crypto for cash or equivalents

• Paying for goods or services with crypto

• Swapping one digital asset for another

• Using crypto for stored-value cards or broker services

• Real estate purchases with crypto (starting 2026)

 Everyday Purchases

If you use crypto for routine purchases—like buying coffee through a crypto payment app—reporting is required only if annual transactions exceed $600.

Transactions Temporarily Excluded

For now, brokers are not required to report the following complex transactions:

• Wrapping and unwrapping tokens

• Liquidity pool activity

• Staking rewards

• Certain crypto lending transactions

• Short sales

• Notional principal contracts

These exclusions may change as future IRS guidance evolves.

 What Information Will Be Reported?

For each reportable transaction, brokers must provide the IRS with:

• Taxpayer name, address, and TIN

• Type and quantity of digital asset sold

• Date of sale

• Gross proceeds (before fees)

• Type of transaction (cash, property, services, etc.)

• Transfer-in dates for previously moved assets

 Cost Basis Reporting Starts in 2026

• 2025: Brokers report gross proceeds only

• 2026 onward: Brokers must also report cost basis

This will significantly reduce underreporting and increase IRS enforcement accuracy.

 Understanding Cost Basis & Accounting Methods

When you buy crypto at different times and prices, each purchase creates a separate cost basis lot.

Default Method: FIFO

The IRS default is FIFO (First-In, First-Out)—the earliest purchased crypto is assumed to be sold first.

• Higher taxes during rising markets

• Lower taxes during falling markets

Alternative: Specific Identification

Specific identification allows you to choose which crypto units you sell—potentially lowering taxes.

To use it:

• Identification must occur at or before the time of sale

• You may use timestamps, purchase prices, or standing broker instructions

Special Relief for 2025

During 2025 only, taxpayers may use specific identification in their own records, even if brokers can’t support it yet.

Starting January 1, 2026, brokers must fully support specific identification—or FIFO applies automatically.

 The End of the “Single Wallet” Strategy

Historically, crypto investors tracked all holdings as one universal pool—even across multiple wallets.

That strategy is no longer allowed.

New Rule: Wallet-by-Wallet Basis Tracking

• Each wallet or exchange must track its own cost basis

• Transfers between wallets require basis allocation

Safe Harbor Allocation Methods

The IRS allows two options:

1. Specific unit allocation (precise but complex)

2. Global allocation (simpler and more practical)

The deadline to allocate unused basis was extended to December 31, 2025.

What About DeFi and Non-Custodial Platforms?

Good news for DeFi users:

• IRS reporting rules for DeFi were officially rescinded in 2025

• No reporting requirements currently apply to decentralized platforms

• New rules cannot be issued without Congressional approval

For now, DeFi remains outside mandatory IRS broker reporting.

 Key Takeaways

• Form 1099-DA begins in 2025, with filings due in 2026

• Custodial brokers must report crypto transactions to the IRS

• Cost basis reporting becomes mandatory in 2026

• FIFO is the default unless specific identification is used

• Crypto must now be tracked wallet by wallet

• DeFi platforms remain exempt—for now

How to Prepare Now

To stay compliant and minimize tax exposure:

• Start using crypto accounting software

• Organize assets by wallet or exchange

• Decide on an accounting method (FIFO vs. Specific ID)

• Keep detailed transaction records

Crypto taxes are no longer optional—or invisible. With Form 1099-DA, transparency is the new standard.

Preparation today can save you thousands tomorrow.