The IRS is implementing a new dedicated tax form, 1099-DA, for cryptocurrency transactions beginning with the 2026 tax season (covering 2025 income). This change aims to improve tax compliance in the rapidly growing digital asset market, but it also introduces new responsibilities for taxpayers. Here’s what you need to understand to avoid errors and potential penalties.
The Shift from 1099-B
Previously, crypto transactions were reported using the broader Form 1099-B, typically reserved for stocks and bonds. Starting in 2026, all digital asset proceeds from broker transactions must be reported on the new 1099-DA. The IRS’ goal is greater clarity and accountability in the crypto space, where accurate reporting has been historically inconsistent.
Why This Matters
The introduction of the 1099-DA is significant because it signals the IRS’ increasing focus on cryptocurrency taxation. The agency is actively working to close loopholes and ensure that digital asset gains are properly accounted for. While the change doesn’t create new tax obligations, it makes enforcement more straightforward.
Key Dates & Deadlines
Keep these dates in mind:
- December 31, 2025: Last day for crypto transactions to be included in the 2025 tax year.
- January 1, 2026: All digital asset transactions on or after this date must include cost basis on the 1099-DA.
- February 17, 2026: Brokers must provide taxpayers with receipts showing the 1099-DA information reported to the IRS.
- March 31, 2026: Deadline for brokers to electronically file 1099 forms with the IRS.
The Cost Basis Challenge
A critical issue with the new form is that your broker may not automatically include your cost basis (the original price you paid for the asset). If the 1099-DA shows only gross proceeds, the IRS may assume a zero cost basis, resulting in you being taxed on the full sale amount. You are responsible for tracking and reporting your cost basis accurately to minimize tax liabilities.
What is Cost Basis?
Cost basis is the original price you paid for an asset, including any transaction fees. The IRS defines this as “noncovered” for crypto trades made before Jan. 1, 2026, meaning brokers aren’t required to report it. Mandatory cost-basis reporting begins on or after that date.
Brokers & Reporting: Who’s Covered?
The IRS considers the following entities as “brokers” required to report under the new rules:
- Centralized crypto exchanges (Coinbase, Kraken, Gemini)
- Payment processors (PayPal, Venmo) if used for crypto transactions
- Hosted wallets that hold your private keys
Decentralized finance (DeFi) participants and noncustodial wallets may not be required to report until 2027, but you are still legally obligated to report income from these activities.
FIFO and Lot Selection
The IRS and Treasury default to the First-In, First-Out (FIFO) method for cost basis. This means the first crypto you bought is assumed to be the first crypto you sold for tax purposes. If you want a different method, you must instruct your broker at the time of the sale. Some exchanges allow custom lot selection in their settings.
Compliance & Penalties
Discrepancies between your reported income and your broker’s filings can result in fines, even if unintentional. The IRS is providing brokers some leeway for initial implementation, but taxpayers remain responsible for accurate reporting.
“You will be required to report DeFi activities like staking rewards on your taxes… staking rewards, liquidity pool tokens, and airdrops are generally reported as ordinary income.” – Lisa Greene-Lewis, CPA at TurboTax.
In conclusion, the new 1099-DA form is a major step toward greater IRS scrutiny of cryptocurrency transactions. Accurate recordkeeping and understanding the cost basis rules are now more critical than ever to avoid penalties and ensure compliance.
