IRS Issues Final Cryptocurrency Regulations
After reviewing public comment, the IRS issued final regulations regarding the reporting requirements for brokers who take possession of digital assets sold by customers. These regulations do not apply to decentralized exchanges. Beginning in 2025, mainstream exchanges, such as Coinbase, will be required to issue Form 1099-DA for sales of digital assets. Form 1099-DA will closely mirror Form 1099-B, which reports the sale of certain broker transactions.
These regulations will go into effect for digital asset sales during the 2025 tax year. Initially, the 1099-DA will report the gross proceeds only. Certain transactions will require basis reporting beginning in the 2026 tax year.
The 1099-DA requirements apply generally to cryptocurrency. They will also apply to the sale of certain stable coins and NFTs above a de minimis threshold (most likely $10,000). Activities that are strictly excluded from these reporting requirements include:
Wrapping and unwrapping transactions
Liquidity provider transactions
Staking transactions
Transactions described by digital asset market participants as lending of digital assets
Transactions described by digital asset market participants as short sales of digital assets
Notional principal contract transactions
These regulations are aimed at brokers, but they will also directly impact anyone that sells a digital asset. Form 1099-DA is another form that taxpayers will need to gather and include as part of their yearly tax preparation documentation. You should expect to receive a form for each individual sale. This could get cumbersome if you are a high-frequency trader. It is important to be aware of the new guidelines so you can prepare your records appropriately.
If you have been accurately reporting your digital assets sales in the past, the issuance of Form 1099-DA will not alter the reporting process. You may continue to utilize digital asset tracking software, such as Koinly, to help aggregate your trades and report your gross proceeds and gross basis.
This is one of the first steps in the “regulation” of digital assets. I expect the IRS to continue to publish guidance around cryptocurrency and NFTs in the decentralized space in the future, as it is an area that has been under increased scrutiny.
Note to Gamblers
Most online gaming sites that transact in digital currency will not be required to follow these regulations. It does not appear to apply to peer-to-peer transactions either. However, this does not affect your reporting requirement. Any deposits and withdrawals of cryptocurrency to these sites or sales between peers must be reported properly.
The receipt, or lack thereof, of a 1099-DA does not determine the taxability of a transaction. All sales of digital assets must be reported. This includes sales through centralized exchanges, decentralized exchanges, online gambling sites, or peer-to-peer transactions.