The tax landscape for cryptocurrency investors is set to change significantly in 2025, as new reporting requirements come into effect. According to a review by the Internal Revenue Service (IRS) in 2023, only around 25% of crypto investors are currently compliant with their tax obligations. This compliance rate is expected to increase due to the introduction of third-party reporting for transactions involving centralized exchanges.
Starting in 2025, if you sell or exchange cryptocurrency on platforms like Coinbase, these exchanges will be required to report your transactions to the IRS on a new Form 1099-DA (Digital Assets). Investors will receive a copy of this form, which is expected to be sent out by January 30, 2026, ahead of filing their 2025 tax returns. The introduction of this reporting mechanism does not create new tax obligations but aims to enhance compliance and facilitate the IRS’s ability to track potential discrepancies.
Shehan Chandrasekera, head of tax strategy at CoinTracker, explained that if the information reported on your tax return does not match what appears on the 1099-DA, the IRS’s Automated Underreporter system may flag the difference, prompting the agency to reach out for clarification.
Implications of the New Reporting Requirements
While the new reporting requirements may seem daunting, there are benefits for investors. Tomer Siegal, vice president of product at Ledgible, noted that the 1099 form simplifies the reporting process for those who need to account for their investment activities. However, it is essential to be aware of what will and will not be reported on the 1099-DA.
For the 2025 tax year, centralized exchanges are only obligated to report the gross proceeds of crypto sales, omitting the cost basis necessary for calculating capital gains and losses. Starting in 2026, exchanges will begin to report cost basis, but only for securities purchased after January 1, 2025, and only if the purchase and subsequent sale occur on the same exchange without any transfers.
Certain transactions will not be reported on the 1099-DA. For instance, sales of qualified stablecoins under $10,000, non-fungible tokens (NFTs) sold for less than $600, and transfers of wrapped tokens will not appear on the form. Yet, investors remain responsible for reporting these transactions on their tax returns.
Understanding Your Gains and Losses
Investors who have sold shares in SEC-regulated bitcoin or Ethereum exchange-traded funds (ETFs) can expect these transactions to be reported on Form 1099-B, similar to traditional stocks and bonds. Notably, transactions conducted on decentralized exchanges, which facilitate peer-to-peer trading, will not include third-party reporting. Earlier plans to require these platforms to issue 1099 forms by 2027 were repealed.
Despite the varying reporting requirements between traditional and crypto assets, the tax treatment of capital gains and losses remains consistent. Losses can offset gains, and if losses exceed gains, investors can deduct up to $3,000 from their ordinary income each year. Any additional losses can be carried forward to offset gains in future tax years.
For example, if an investor realizes $15,000 in capital losses in 2025, while achieving $8,000 in gains, they can use the losses to negate the tax owed on those gains and apply an additional $3,000 against their ordinary income. The remaining $4,000 in losses can be utilized in subsequent tax years.
It is crucial for crypto investors to stay informed about these changes and to ensure accurate reporting on their tax returns to avoid potential discrepancies with the IRS.
