Taxpayers who own cryptocurrency or other digital assets—such as bitcoin, stablecoins, or NFTs—should prepare for a more complex tax filing experience beginning with their 2025 income tax return. The IRS has finalized sweeping new regulations that significantly expand digital asset reporting and compliance obligations, marking a major shift in how crypto activity is tracked, reported, and audited.
One of the most consequential changes is the introduction of Form 1099-DA, which, for the first time, requires digital asset brokers to report certain taxpayer transactions directly to both the IRS and the taxpayer. While this new reporting framework may appear to simplify compliance at first glance, it is more likely to introduce new layers of confusion, mismatches, and compliance risk.
This article explores the most pressing issues taxpayers are likely to face under the new rules and explains why Form 1099-DA may ultimately create more headaches than relief.
Key Issues Taxpayers Will Encounter Under the New Crypto Reporting Rules
| Topic | Why It Matters |
|---|---|
| Transition to Wallet-by-Wallet Cost Basis | Universal cost basis tracking is no longer permitted as of 2025 |
| FIFO or Specific Identification Requirement | Lot selection rules are stricter and time-sensitive |
| Missing Cost Basis on 1099-DA | Many forms will report proceeds only |
| Incomplete Transaction Reporting | Several transaction types are excluded from 1099-DA |
| Late-Issued 1099-DAs | Forms may arrive after returns are filed |
| UTC Time Zone Reporting | Timing mismatches may affect taxable year recognition |
Mandatory Shift to Wallet-by-Wallet Cost Basis Tracking
Beginning January 1, 2025, taxpayers are no longer allowed to use the universal cost basis method when calculating gains or losses on digital asset sales. Under the prior approach, taxpayers could select cost basis from any wallet they controlled, regardless of where the sold asset was held. This flexibility is now eliminated.
Under the new wallet-by-wallet (or account-by-account) method, taxpayers must use the cost basis associated with the specific wallet from which the asset is sold. This change forces taxpayers to re-evaluate historical holdings and segregate cost basis across multiple wallets—often retroactively.
To ease the transition, the IRS released Revenue Procedure 2024-28, which provided a limited safe harbor allowing taxpayers to reallocate unused basis. However, many taxpayers missed the safe harbor deadline. Even so, compliance is still mandatory, and failure to transition could allow the IRS to recompute cost basis, potentially increasing taxable gains.
Taxpayers using crypto tax software should confirm which method was applied in prior years and whether corrective action is needed.
FIFO or Specific Identification: No More Informal Lot Selection
The final broker regulations also clarify that taxpayers must use either:
- First-In, First-Out (FIFO), or
- Specific Identification (Specific ID)
when determining which digital asset unit is sold.
Under FIFO, the oldest unit in a wallet is deemed sold first. Under Specific ID, taxpayers may select a particular unit—based on acquisition date and cost—but the identification must be made before the transaction occurs.
Methods such as HIFO (highest-in, first-out) and LIFO (last-in, first-out) are still permitted, but only if they meet the formal Specific ID requirements. Some brokers currently lack the technical capability to execute proper Specific ID elections. Acknowledging this, the IRS issued Notice 2025-7, granting temporary relief for 2025 transactions while brokers update their systems.
Why Cost Basis Will Often Be Missing on Form 1099-DA
Form 1099-DA is designed to report digital asset dispositions, including proceeds, dates, and asset details. However, taxpayers should not expect these forms to include complete information—particularly cost basis.
There are several reasons why basis may be missing:
- Brokers are not required to report cost basis for 2025 transactions
- Brokers cannot track basis once assets leave their platform
- Transfer statements between brokers are not mandatory
- Assets acquired before January 1, 2026 may never have reportable basis
As a result, taxpayers remain fully responsible for maintaining accurate basis records, especially when using multiple exchanges or non-custodial wallets.
Many Crypto Transactions Will Not Appear on a 1099-DA
Not all digital asset activity will be reported to the IRS. Notice 2024-57 excludes several transaction types from 1099-DA reporting, including:
- Staking activity
- Liquidity provision
- Wrapping and unwrapping tokens
- Lending transactions
- Short sales of digital assets
- Certain derivative-style arrangements
Additionally, the regulations introduce de minimis thresholds—$10,000 for qualified stablecoins and $600 for specified NFTs—below which brokers are not required to report.
Importantly, non-reporting does not mean non-taxable. Taxpayers must still analyze and report taxable events, even if no 1099-DA is issued.
Expect Late 1099-DAs—Possibly After You File
Because Form 1099-DA is new, the IRS has granted brokers penalty relief for late filings if they act in good faith. This relief can extend up to one year beyond the standard deadline.
As a result, taxpayers may receive Forms 1099-DA after filing their tax return, potentially requiring amended returns if new information surfaces. Taxpayers should continue tracking their crypto activity independently and avoid relying solely on broker-issued forms.
UTC Reporting May Create Year-End Timing Conflicts
Another underappreciated issue is that brokers are likely to report transactions using Coordinated Universal Time (UTC) rather than a taxpayer’s local time zone.
This means a transaction executed late on December 31 in the U.S. could be reported as occurring in the following tax year. The result may be timing mismatches between a taxpayer’s return and the IRS’s records, increasing the likelihood of IRS notices or audits.
Taxpayers should verify the time zone reporting methodology used by each broker.
Conclusion: More Guidance, More Responsibility
Although the IRS has provided clearer guidance than ever before on digital asset taxation, crypto tax compliance in 2025 will be more complex—not less. Taxpayers must adapt to new reporting forms, stricter cost basis rules, incomplete broker data, and expanded audit visibility.
Given the technical complexity and heightened enforcement environment, taxpayers with significant digital asset activity should strongly consider working with a tax professional who understands cryptocurrency reporting, Form 1099-DA reconciliation, and IRS audit risk mitigation.
