Form 1099-DA is Coming: Navigating the New Challenges for Crypto Taxpayers in 2025
A New Era for Crypto Taxes is on the Horizon
If you’re involved in the world of cryptocurrency and digital assets, get ready for a significant shift in how you handle your taxes. Starting with the 2025 tax year, the IRS is rolling out new regulations designed to increase transparency and crack down on underreporting. The centerpiece of this change is the new Form 1099-DA, “Digital Assets,” which will change how brokers report your crypto activity.
While having a standardized form might sound like a relief, it’s not a silver bullet for simplifying your tax return. In fact, these new rules introduce several complexities that could create headaches for unprepared taxpayers. This guide will break down the key
The End of the Universal Method: Say Hello to Wallet-by-Wallet Accounting
One of the most significant changes is the elimination of the “universal method” for calculating cost basis. Previously, you could treat all your digital assets as one big pool, regardless of which wallet or exchange they were in. This allowed you to use methods like HIFO (Highest-In, First-Out) across your entire portfolio to select the most tax-advantageous coins to sell.
Starting January 1, 2025, that’s no longer allowed. The IRS now mandates a wallet-by-wallet (or account-by-account) method. Think of it like this: each of your crypto wallets is now its own separate financial account. When you sell a token, you can only use the cost basis of tokens held within that same wallet.
For taxpayers who previously used the universal method, this means a mandatory transition. You’ll need to re-evaluate your holdings to determine the correct cost basis for the assets in each individual wallet. Failing to make this switch could put you at risk of the IRS recalculating your gains and losses, potentially leading to a higher tax bill.
Choosing Your Cost Basis Method: FIFO vs. Specific ID
The new regulations also clarify which accounting methods are permissible for determining your gains and losses. Your two main options are:
- FIFO (First-In, First-Out): This is the default method. It assumes the first units of a cryptocurrency you acquired are the first ones you sell.
- Specific Identification (Specific ID): This method gives you more control, allowing you to choose which specific units of a crypto you are selling. This is how you can still use tax-optimizing strategies like HIFO or LIFO (Last-In, First-Out).
However, there’s a crucial catch with Specific ID: you must clearly identify the specific lot (including its acquisition date and basis) before you execute the sale. You can often do this by setting up standing orders with your broker to automatically use your preferred method (like HIFO), but you should confirm if your broker supports this functionality.
Decoding Form 1099-DA: What It Is and What It Isn’t
Form 1099-DA is the first-ever IRS tax form dedicated solely to digital assets. Brokers like Coinbase, Kraken, and others will be required to send this form to both you and the IRS, detailing your crypto sales and exchanges for the year.
What will be on Form 1099-DA?
- Your personal information (Name, SSN, Address)
- Name of the digital asset sold
- Number of units sold
- Dates of acquisition and sale
- Gross proceeds from the sale
- (Sometimes) The cost basis of the assets sold
The key word here is sometimes. While the IRS will expect the proceeds reported on your 1099-DA to match what’s on your tax return, the form may not have all the information you need, especially the cost basis. This can happen if you transferred crypto onto the exchange from a self-custody wallet or another platform, as your broker won’t know your original purchase price.
The Blind Spots: What Your 1099-DA Won’t Report
Taxpayers must understand that the 1099-DA will not be a complete record of all their taxable crypto activity. You are still responsible for tracking and reporting everything, including transactions that brokers are not required to report.
Per IRS guidance, brokers are temporarily exempt from reporting on certain complex transactions, including:
- Transactions involving digital asset loans
- Assets released from smart contracts (e.g., DeFi staking rewards)
- Certain airdrops
- Transactions in which the broker has no visibility (e.g., peer-to-peer trades from a self-custody wallet)
Additionally, the regulations provide de minimis thresholds, meaning brokers don’t have to report small transactions involving qualified stablecoins (under $10,000 annually) and specified NFTs (under $600 annually). While this reduces paperwork for brokers, if these transactions result in a gain or loss, you are still legally required to report them.
Timing is Everything: Late Forms and Time Zone Traps
Two timing-related issues could cause significant confusion for the 2025 tax year.
1. Potential for Late Forms: The IRS is offering transitional relief to brokers, reducing penalties for filing 1099-DAs late as they adjust to the new systems. This means you could receive a 1099-DA months after you’ve already filed your tax return. If it contains new information, you may need to file an amended return.
2. The UTC Time Zone Mismatch: Regulations require brokers to use a consistent time zone, which will likely be UTC. This can create discrepancies. For example, if you live in New York (EST) and execute a trade at 10 p.m. on December 31, 2025, it’s already 2026 in UTC. Your broker will report that sale on your 2026 tax forms, but you might mistakenly report it on your 2025 return based on your local time. This mismatch could trigger questions from the IRS.
The Takeaway: Your Responsibility Has Increased
While the introduction of Form 1099-DA marks a step toward clearer tax guidance, it also places a greater burden on the taxpayer. You can no longer rely solely on the forms you receive from exchanges.
For the 2025 tax year and beyond, meticulous, independent record-keeping is non-negotiable. You must track all your transactions across every wallet and exchange, understand the new wallet-by-wallet basis rules, and be prepared to reconcile your records with potentially incomplete or late 1099-DA forms.
Given the added complexity, consulting with a tax professional who specializes in digital assets is more important than ever. They can help you navigate these changes, ensure you remain compliant, and develop a tax strategy that aligns with the new rules.
