IRS to Require Third-Party Reporting on Crypto Transactions Starting in 2025 (Report)

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From the year 2025 onwards, centralized crypto exchanges (CEX) transactions will be subject to revised Internal Revenue Service (IRS) reporting rules, signifying a substantial change in the digital asset investment landscape.

For the initial time, transactions processed via custodial accounts on platforms such as Coinbase and Gemini will now be required to undergo third-party reporting due to these recent changes.

New IRS Rules

As per a CNN report, the Internal Revenue Service (IRS) has made it mandatory for intermediaries such as custodial trading platforms, specific digital wallet providers, digital asset kiosks, and certain payment processors to disclose their transactions.

Starting from 2026, all transactions involving digital assets such as purchases and sales, will be documented using a new form known as the 1099-DA. This information will then be shared with both you and the Internal Revenue Service (IRS). During your 2025 tax filing, it’s essential that you include this data in your return. Failing to do so might cause inconsistencies, as the IRS will already have this data stored for comparison purposes.

Cost basis reporting, which signifies the initial buying price of a digital asset, won’t be mandatory for brokers until the 2026 tax season. As Jessalyn Dean, vice president of tax information at Ledgible, pointed out, this postponement could impact taxpayers’ ability to correctly compute taxable gains. It’s essential to understand that cost basis plays a significant role in figuring out profits or losses from asset sales.

For users involved in transactions on decentralized platforms such as Uniswap and Sushiswap, the reporting timeline differs. These peer-to-peer transactions will not require third-party reporting until 2027. The information reported by these platforms will only include the total earnings from transactions, since they do not have the initial purchase price details to determine the cost basis.

This year, investors in Bitcoin spot exchange-traded funds (ETFs) will likewise be subject to reporting obligations. The ETF providers will distribute forms like the 1099-B or 1099-DA, which will encompass not only the earnings from sales but also any taxable incidents that take place within the fund.

Dean also recommended that those who invest in Bitcoin ETFs should consult with a tax professional, since taxable income or losses might stem from the fund’s internal operations, regardless of whether the underlying assets have been held for a long time.

IRS Relief Notice

Just under a month ago, the IRS unveiled an automatic solution for users of centralized finance systems who were about to encounter new crypto tax regulations in 2025. This move means they don’t need to take action right away. This relief is designed to tackle complexities stemming from Section 6045 custodial broker rules, which previously demanded that CeFi brokers report transactions using particular accounting methods.

Instead of sticking with the default First-In, First-Out (FIFO) approach, taxpayers have the option to minimize potential increased tax liabilities by utilizing their personal records or specialized crypto tax software. Beginning in 2026, it is crucial for users to work directly with their brokers to choose an accounting method that suits them best, as defaulting to FIFO could be avoided in this way.

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2025-01-19 21:36