The U.S. Internal Revenue Service (IRS) continues to refine its approach to cryptocurrency taxation, introducing pivotal changes that reshape how investors and brokers report digital asset transactions. With new cost-basis reporting rules, updated forms like Form 1099-DA, and a shift toward per-wallet tracking, understanding these regulations is essential for compliance and tax efficiency.
This guide breaks down the latest IRS crypto cost-basis reporting updates—particularly those effective in 2025—while offering actionable insights to help you stay compliant, minimize tax liability, and avoid penalties.
Understanding the 2025 IRS Crypto Cost-Basis Reporting Changes
The IRS has delayed the full implementation of certain crypto reporting requirements until December 31, 2025, giving brokers and investors additional time to adapt. Originally set for 2024, the mandate requiring custodial brokers to default to the FIFO (First In, First Out) method for capital gains calculations has been postponed. This delay provides flexibility for investors to continue using strategic cost-basis methods like HIFO (Highest In, First Out) or Specific Identification.
Beginning in 2025, digital asset brokers—including exchanges and custodial platforms—must report detailed transaction data to both taxpayers and the IRS using Form 1099-DA. This new form will document sales, exchanges, and dispositions of digital assets, including cryptocurrencies and potentially NFTs.
What Is Form 1099-DA and Why It Matters
Form 1099-DA is a cornerstone of the IRS’s effort to increase transparency in digital asset transactions. It will be issued by brokers to report:
- The date of acquisition and disposal of digital assets
- The fair market value (FMV) at the time of sale or exchange
- The cost basis of the disposed asset
- Whether the gain is short-term or long-term
Taxpayers will use this form to accurately complete Form 8949 and Schedule D, ensuring correct capital gains reporting. Failure to report these transactions can result in audits, penalties, or interest charges.
The Role of Cryptocurrency Brokers in Tax Compliance
Crypto brokers are now treated similarly to traditional securities brokers under IRS regulations. They must:
- Track and report cost basis on a per-transaction, per-wallet basis
- Apply consistent accounting methods across customer accounts
- Issue Form 1099-DA by January 31 following the tax year
While full reporting enforcement is delayed until 2026, brokers are expected to build systems capable of handling granular data collection. Investors should verify that their platforms are preparing for compliance to avoid future discrepancies.
How to Determine Cost Basis in Cryptocurrency
The cost basis is the original value of your crypto asset in U.S. dollars, including purchase price and transaction fees. Accurate cost-basis tracking is critical for calculating capital gains or losses.
Per-Wallet vs. Universal Cost-Basis Tracking
Starting in 2025, the IRS mandates per-wallet or per-account cost-basis tracking, replacing older pooling methods. Here’s how the two approaches differ:
- Per-Wallet Method: Each wallet or exchange account is tracked separately. This allows for more precise tax optimization—such as choosing high-cost-basis coins during downturns.
- Universal Method: All holdings are pooled together under one accounting method (e.g., FIFO). Simpler but less flexible.
Accounting Methods: FIFO vs. Specific Identification
FIFO (First In, First Out)
FIFO assumes you sell the oldest coins first. In a bull market, this often results in higher capital gains since early purchases were likely cheaper.
Specific Identification
This method lets you choose exactly which units of cryptocurrency are sold. It offers superior tax planning control—you can sell high-cost-basis coins to reduce gains or offset losses strategically.
To use Specific Identification, you must document your selection at or before the time of sale. Crypto tax software can automate this process with timestamped records.
Calculating Taxable Income from Crypto Transactions
Every crypto transaction—whether a sale, trade, or payment—may trigger a taxable event.
Capital Gains and Losses
Capital gain = Sale price – Cost basis
If positive → taxable gain
If negative → deductible loss (up to $3,000 annually against income; excess carries forward)
Example: You bought 1 BTC for $10,000 (including fees). Later, you trade it for ETH when BTC is worth $15,000. You realize a $5,000 capital gain.
Fair Market Value (FMV) Rules
The IRS requires using FMV in USD at the time of transaction—even when trading one crypto for another or using stablecoins. For instance:
- Trading BTC for ETH? The FMV of BTC at disposal determines your proceeds.
- Receiving payment in crypto? The FMV on receipt date is your income amount.
Tax Implications of NFTs, DeFi, Mining, and Staking
NFT Transactions
Selling an NFT triggers capital gains tax based on the difference between sale price and purchase cost. Holding over one year qualifies for long-term rates. Buying NFTs with crypto may also create a taxable event if the crypto has appreciated.
DeFi Earnings
Interest, liquidity pool rewards, and yield farming income are generally taxed as ordinary income at FMV upon receipt. Swaps on decentralized exchanges count as disposals and may generate capital gains.
Mining and Staking Rewards
- Mining: Taxed as ordinary income when received.
- Staking: Same treatment—taxable upon receipt when rewards are accessible and under your control.
These activities may also constitute self-employment income if conducted regularly or at scale.
Advanced Strategies for Compliance and Tax Efficiency
Leveraging Transitional Relief
The IRS has provided transitional relief to ease the shift into stricter reporting. Investors can use this period to:
- Audit their transaction history
- Adopt compliant accounting methods
- Migrate data into tax-ready formats
This grace period helps prevent unintentional noncompliance during system upgrades.
Use Crypto Tax Software
Automated tools integrate with exchanges and wallets to:
- Track cost basis across platforms
- Apply FIFO or Specific ID methods
- Generate IRS-ready reports (Form 8949, etc.)
Popular platforms offer audit trails and real-time FMV logging—critical for defending your filings.
👉 See how top investors streamline tax reporting across multiple wallets and exchanges effortlessly.
Avoiding Penalties: Best Practices for Crypto Tax Compliance
- Keep Detailed Records: Dates, amounts, prices, wallet addresses.
- Use Consistent Accounting Methods: Don’t switch between FIFO and Specific ID without justification.
- Report All Transactions: Even small trades count.
- Stay Updated on IRS Guidance: Monitor announcements related to Rev. Proc. 2024-28 and Infrastructure Investment and Jobs Act provisions.
- Consult a Crypto-Savvy CPA: Professional advice ensures accuracy and reduces audit risk.
Frequently Asked Questions (FAQ)
What is cost basis in cryptocurrency?
Cost basis is the original purchase price in USD, including fees. It’s used to calculate capital gains when you sell or trade crypto.
Do I have to report every crypto transaction?
Yes. The IRS requires reporting all sales, trades, and disposals—even if no fiat currency is involved.
What happens if I don’t file Form 8949?
You risk penalties, interest, or an audit. Unreported crypto income is a common red flag.
Can I use different accounting methods for different wallets?
No. You must apply one consistent method across all holdings unless specifically allowed under transitional rules.
Will decentralized exchanges report to the IRS?
Currently, only centralized brokers are required to issue Form 1099-DA. However, users are still responsible for self-reporting DEX activity.
How does the IRS track crypto transactions?
Through exchange reporting, blockchain analytics tools, and third-party data sharing agreements with major platforms.
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