If you bought, sold, traded, staked, mined, or simply held cryptocurrency in 2025, the IRS expects to hear about it. And for the first time, so does your exchange.
The 2026 filing season—covering tax year 2025—marks a genuine turning point. New broker reporting requirements take effect, the IRS has spent years building out its digital asset enforcement capabilities, and the agency now has more data than ever to cross-reference against what you report.
This guide breaks down what's changing, what you need to track, and how to position yourself for a filing season that's smoother than the last one.
The IRS has not been passive about cryptocurrency. In 2023 alone, the agency received more than 1.2 million digital asset returns—a sharp increase from prior years, according to the IRS Data Book. The agency has also issued thousands of John Doe summonses to exchanges, compelling them to hand over customer records. As of 2024, the Department of Justice and IRS have issued more than 10,000 such summonses.
Translation: if you've been treating crypto as invisible to the tax system, that window is closing fast.
Starting with the 2025 tax year—filed in 2026—brokers must report gross proceeds from digital asset sales on Form 1099-DA. This is the first time a dedicated IRS form will capture crypto transactions directly from exchanges and custodians.
However, the form doesn't mean you can stop tracking your own records. Cost basis reporting is being phased in over several years, and many brokers won't report it initially. Even so, the 1099-DA gives the IRS a new layer of visibility into your activity.
If you sold crypto in 2025, you'll likely receive a 1099-DA in early 2026. The IRS will receive a copy too. If your return doesn't match, expect questions.
This doesn't mean you should panic. It means you should prepare.
We'll walk through the fundamentals, the new reporting rules, commonly missed taxable events, cost basis strategies, and planning moves that can reduce what you owe. By the end, you'll know exactly what to track and why.
Key Takeaway: The 2026 filing year is the first with mandatory 1099-DA reporting. Even if your broker doesn't report cost basis yet, the IRS will see your gross proceeds. Accurate records are no longer optional.
The IRS made this clear in Notice 2014-21: virtual currency is treated as property for federal tax purposes. That single classification drives everything.
When you sell property, you have a capital gain or loss. When you trade property for other property, you have a taxable event. Crypto-to-crypto trades count. Using crypto to buy a laptop counts. Swapping BTC for ETH counts.
Since 2019, Form 1040 has asked whether you received, sold, exchanged, or otherwise disposed of any financial interest in virtual currency. You must answer. Leaving it blank or answering incorrectly can trigger penalties or audits.
Every taxable crypto transaction gets reported on Form 8949, which flows to Schedule D. You'll list the date acquired, date sold, proceeds, and cost basis for each transaction—or attach a statement if you have hundreds of trades.
Hold crypto for one year or less, and gains are taxed at ordinary income rates (up to 37%). Hold for more than one year, and gains qualify for long-term capital gains rates—0%, 15%, or 20%, depending on income.
High earners face an additional 3.8% Net Investment Income Tax. For single filers with income over $518,900 in 2025, the top long-term rate plus NIIT reaches 23.8%.
Not everything is a capital gain. Mining rewards, staking rewards, and airdrops are typically taxable as ordinary income at the fair market value when received. That value becomes your cost basis for future sales.
Key Takeaway: Crypto is property. Every disposition—sale, trade, or payment—is taxable. Mining, staking, and airdrops create ordinary income first, then capital gain or loss treatment later.
Form 1099-DA is the IRS's new dedicated form for digital asset transactions. For the 2025 tax year, brokers must report gross proceeds from sales. This includes exchanges, custodians, and certain other parties.
If you sold crypto on Coinbase, Kraken, or similar platforms in 2025, expect a 1099-DA in early 2026.
Here's the catch: not all brokers will report cost basis initially. The IRS is phasing in basis reporting over several years, as outlined in Notice 2024-56. As of 2025, only a limited number of exchanges have begun reporting basis on Form 1099-DA.
This means you still need to track your own basis. The 1099-DA may show proceeds without basis—if you rely on it alone, you'll overpay.
The Infrastructure Investment and Jobs Act of 2021 expanded the definition of "broker" to include digital asset exchanges, custodians, and certain other parties. This is what triggered the 1099-DA requirement.
The definition is still being interpreted, and some DeFi platforms and non-custodial services remain outside the current scope. But the trend is clear: more reporting, not less.
When your 1099-DA arrives, compare it to your records. Discrepancies happen—transfers between wallets, missing basis, timing issues. If the form is wrong, you may need to request a correction or attach a statement explaining the difference.
Key Takeaway: Form 1099-DA reports gross proceeds, not necessarily cost basis. You must reconcile it with your own records to avoid overpaying or underreporting.
This trips up a lot of people. Swapping BTC for ETH isn't a tax-free exchange. It's a disposition of BTC at fair market value, triggering capital gain or loss.
Example: Taylor trades 1 BTC for 20 ETH in 2025. Taylor must report a capital gain or loss based on the fair market value of the BTC at the time of trade compared to its basis.
Paying for coffee with Bitcoin? That's a taxable event. You report any gain or loss based on the difference between your basis and the fair market value at the time of payment.
If you're paid in crypto for services, that's ordinary income at fair market value. Self-employment tax may also apply.
Example: Jamie receives 0.5 ETH from staking rewards in June 2025 when ETH is $3,000. Jamie reports $1,500 as ordinary income. The cost basis of that ETH becomes $3,000 per ETH for future sales.
NFTs are treated as capital assets. Selling an NFT you held for investment triggers capital gain or loss. Creating and selling NFTs may be ordinary income.
DeFi gets complicated. Earning yield is generally ordinary income. Liquidating collateral can trigger gains. Borrowing against crypto isn't taxable, but the details matter.
Key Takeaway: Crypto-to-crypto trades, purchases with crypto, and DeFi activity all create taxable events. If you received something of value, the IRS wants to know.
Cost basis is what you paid for the asset, including fees. When you sell, your gain is the difference between proceeds and basis. Higher basis means lower gain.
For 2025 transactions, the IRS still requires wallet-by-wallet cost basis tracking for most taxpayers. Universal basis reporting hasn't been fully implemented, so you can't just pool everything together.
Specific identification lets you choose which units of crypto you're selling. If you bought BTC at $20,000 and $60,000, you can choose to sell the higher-basis lot first, reducing your gain.
You must document your choice. Records should show which specific units you sold, when you acquired them, and your basis. Without documentation, the IRS may assume FIFO (first-in, first-out), which often produces a higher gain.
Example: Alex buys 1 BTC for $60,000 in March 2025 and another 1 BTC for $30,000 in June 2025. In November 2025, Alex sells 1 BTC for $75,000.
In this case, FIFO actually produces the lower gain because the March lot has a higher basis. But if the purchase prices were reversed—March at $30,000 and June at $60,000—specific identification would let Alex sell the June lot and report only $15,000 in gain instead of $45,000. The point is that specific identification gives you control over which lots to sell, allowing you to minimize gains when it's advantageous.
Key Takeaway: Specific identification can reduce your tax bill, but only if you document it. Without records, the IRS defaults to FIFO.
If you hold crypto on a foreign exchange and the aggregate value exceeds $10,000 at any time during the calendar year, you may need to file an FBAR.
Example: Casey holds crypto on a foreign exchange with a total value of $15,000. Casey must file an FBAR because the aggregate value exceeds $10,000 at any time during the year.
FATCA reporting thresholds are higher. For U.S. taxpayers living abroad, the threshold is $200,000 on the last day of the year or $300,000 at any time for single filers.
FBAR is due April 15 with an automatic extension to October 15. FATCA is filed with your return.
FBAR penalties can be severe—up to $100,000 or more per violation. FATCA penalties are $10,000 per year. The fix is simple: report if required.
Key Takeaway: Foreign crypto accounts can trigger FBAR and FATCA. If you're over the threshold, file. The penalties for not filing are far worse than the paperwork.
The annual gift tax exclusion for 2025 is $19,000 per recipient. Gifts below this amount generally don't require a gift tax return. Gifts above may require Form 709.
Example: Morgan donates 2 ETH held for 2 years to a qualified charity when ETH is $4,000. Morgan can deduct $8,000 at fair market value and avoid capital gains tax on the appreciation.
Sell losing positions to offset gains. Unlike stocks, the wash sale rule doesn't currently apply to crypto—but that could change.
Long-term rates are 0%, 15%, or 20%, versus ordinary rates up to 37%. Holding longer can save significantly.
Some self-directed IRAs allow crypto. Gains inside the IRA are tax-deferred or tax-free, depending on the account type.
Key Takeaway: Gifting, donating, and harvesting losses are legitimate strategies. The wash sale rule doesn't apply to crypto yet—but don't count on that forever.
False. Trading crypto for other crypto, using it to buy goods, or receiving it as income are all taxable events.
Not currently. But proposed legislation and IRS guidance could change this. Monitor developments.
False. You must report all taxable transactions, regardless of whether you receive a form.
Moving between wallets you control isn't taxable. But you still need to track basis wallet-by-wallet.
False. Mining rewards are ordinary income when received.
Key Takeaway: Most crypto misconceptions stem from assuming crypto works like cash. It doesn't. It's property, and property has rules.
For every transaction, record the date, amount, fair market value, fees, and purpose (sale, trade, payment, gift, etc.).
Don't forget hardware wallets, DeFi wallets, and exchanges you no longer use. The IRS expects a complete picture.
Software can automate calculations and generate forms. But it relies on complete data. If you're missing transactions, the output is wrong.
The IRS has increased enforcement and data analytics. If you're audited, your records are your defense.
Key Takeaway: Good records are the foundation of compliant crypto taxes. Software helps, but it can't fix missing data.
Congress and the IRS have discussed applying the wash sale rule to crypto. If it happens, tax-loss harvesting strategies will need to change.
Cost basis reporting is phasing in. Eventually, brokers will report basis, simplifying reconciliation but reducing flexibility.
Crypto tax law is evolving. Stay informed through IRS announcements and reputable tax professionals.
Subscribe to IRS updates, follow tax professionals, and review your strategy annually.
Key Takeaway: Crypto tax rules are changing. What works in 2025 may not work in 2027. Stay flexible.
Crypto taxes are complex. A qualified tax professional can help you navigate the rules and avoid costly mistakes.
The best time to get organized was yesterday. The second-best time is now.
Do I have to report cryptocurrency transactions on my tax return? Yes. If you sold, traded, exchanged, or received crypto as income, you must report it. The IRS requires you to answer the digital asset question on Form 1040.
What is Form 1099-DA and when will I receive it? Form 1099-DA is the IRS's new form for reporting digital asset transactions. Brokers must report gross proceeds for the 2025 tax year, so you'll receive it in early 2026.
How is cryptocurrency taxed when I sell it? Crypto is treated as property. When you sell, you have a capital gain or loss based on the difference between your basis and the sale price. Holding period determines whether it's short-term or long-term.
Are crypto mining and staking rewards taxable? Yes. Mining and staking rewards are generally taxable as ordinary income at the fair market value when received. That value becomes your cost basis for future sales.
Can I use specific identification to reduce my crypto taxes? Yes, if you document which units you sold. Without documentation, the IRS may assume FIFO, which often produces a higher gain.
Does the wash sale rule apply to cryptocurrency? Not currently. But proposed legislation and IRS guidance could change this. Monitor developments.
Do I need to report foreign crypto accounts? Possibly. If the aggregate value exceeds $10,000 at any time, you may need to file an FBAR. FATCA thresholds are higher.
How are cryptocurrency gifts taxed? Gifts below the annual exclusion ($19,000 in 2025) generally don't require a gift tax return. The recipient takes your basis for future sales.
Can I donate cryptocurrency to charity? Yes. Donating crypto held more than one year can avoid capital gains tax and provide a fair market value deduction, subject to substantiation rules.
What records should I keep for crypto taxes? Keep dates, amounts, fair market value, fees, and purpose for every transaction. Reconcile all wallets and exchanges.
Ready to get ahead of your 2026 crypto taxes? Download our free Crypto Tax Tracking Checklist and stay compliant while minimizing your tax bill. For personalized guidance, consult a qualified tax professional.