New IRS reporting requirements will make a classic crypto 'tax cheat' risky starting with 2025 return

The IRS will require brokerages to issue Form 1099-DA reporting gross proceeds for digital-asset sales beginning for tax year 2025 and to report both gross proceeds and cost basis for covered securities starting in 2026, sharply increasing reporting and auditability for crypto transactions. Investors and brokers must therefore tighten cost-basis recordkeeping—especially for tokens transferred into custodial accounts where original purchase price may be missing—and consider specialist tax-software or advisors to avoid misreporting. Tax treatment for staking remains unsettled (the IRS currently treats staking rewards as income on receipt but further guidance is expected), a material development as ETFs enable staking exposure, and recent Bitcoin price declines create near-term tax-loss-harvesting and tax-gain-harvesting opportunities for taxable investors.

Analysis

The IRS will require brokerages to issue Form 1099-DA reporting gross proceeds for digital-asset sales starting with tax year 2025, and beginning in tax year 2026 brokers must report both gross proceeds and cost basis for covered securities; because the IRS treats crypto as property, sales trigger capital gains or losses and the new reporting materially increases auditability and compliance risk. Ric Edelman and AICPA sources in the article emphasize that many taxpayers mistakenly assumed limited reporting and that brokers historically did not issue 1099s for crypto sales, so under-reporting is now harder to sustain.

Operationally, investors who moved tokens between wallets and custodians face a gap because brokers may only know the transfer price, not original purchase cost; Coinbase’s example shows cost basis must include transaction fees (e.g., 1 ETH bought for $1,500 plus $50 fee = $1,550). The article recommends using specialist recordkeeping services (ProfitStance, Taxbit, TokenTax, ZenLedger) and engaging knowledgeable tax advisors because many accountants lack crypto training.

Tax policy uncertainty remains: IRS Notice 2024-57 signals further guidance is pending, and the IRS currently treats staking rewards as income on receipt, a point of heightened relevance now that ETF issuers can provide staking rewards. The recent bitcoin decline—more than $40,000 off its record—creates actionable windows for tax-loss or tax-gain harvesting, but investors should document positions and consult experts before executing strategies.

Key Decisions for Investors

• Reconcile and document cost basis for all crypto holdings now (include purchase price, transfer dates and transaction fees) and obtain transfer receipts from custodians
• Engage a crypto-specialist tax advisor and/or subscribe to a dedicated crypto tax-recordkeeping provider (examples: ProfitStance, Taxbit, TokenTax, ZenLedger) to avoid reporting errors
• Evaluate tax-loss and tax-gain harvesting opportunities before year-end in light of bitcoin’s >$40,000 fall, but only after confirming holding periods and tax brackets
• If you plan to transfer tokens to a broker, secure written provenance of original cost basis now because brokers may not have historical purchase data
• Monitor IRS guidance on staking and ETF-based staking rewards closely and avoid assuming rewards are non-taxable until formal rules change