IRS Digital Asset Reporting Rules Tighten for 2025
Federal regulators are tightening oversight of cryptocurrency activity ahead of the 2025 filing season. The Treasury Department and the Internal Revenue Service say expanded reporting requirements will strengthen IRS digital asset reporting and improve how digital asset transactions appear on tax returns.
The Treasury Department says stronger reporting requirements will help regulators track digital assets moving through exchanges and other digital asset platforms. Officials describe digital assets as a digital representation of value recorded on a cryptographically secured distributed ledger, which includes virtual currency and other blockchain-based tokens used in financial activity.
Congress directed regulators to expand reporting requirements through the Infrastructure Investment and Jobs Act. The law modified the Internal Revenue Code to require certain digital asset platforms to report transactions involving digital assets.
Beginning with transactions in 2025, brokers must file Form 1099-DA to report sales or transfers of digital assets. Some reporting may be delivered through electronic furnishing systems or electronic notice procedures, although paper copies may still be issued as part of a tax return document.
Federal guidance treats virtual currency as property for tax purposes rather than real currency. Because of that classification, digital asset transactions are subject to property tax principles when taxpayers calculate gains or losses.
Convertible virtual currency may be treated as a capital asset. When a taxpayer sells a single cryptocurrency or trades one asset for another in an exchange transaction, the difference between the purchase price and the sale price may result in a taxable gain or loss.
Taxpayers must answer the digital asset question on Form 1040, Form 1040-SR, or Form 1040-NR. The question asks whether the filer sold digital assets, received digital assets as payment, or exchanged assets during the year.
Digital assets provided to an independent contractor in the service industry or transferred to customers as an asset may also generate income. Events such as a hard fork or an asset-by-gift may also create reporting obligations, and some transfers may require Form 709 for United States gift reporting.
A major part of the updated system is Form 1099-DA, which will allow regulators to match broker data with information reported on tax returns involving digital asset transactions.
Taxpayers generally report gains or losses on Form 8949 and Schedule D, while some income related to digital assets may appear on Schedule 1. Businesses or partnerships that deal in cryptocurrency may also file additional forms, such as U.S. Return of Partnership Income (Form 1065) or Form 1120-S, as part of a U.S. Income Tax Return.
Even when brokers issue Form 1099-DA, taxpayers may still need to calculate cost basis themselves. IRS Tax Tip guidance notes that some statements may only show gross proceeds, leaving taxpayers responsible for determining gain or loss.
Guidance in Notice 2014-21 and Notice 2026-4 explains how digital assets are taxed under the Internal Revenue Code. Publication 544 also outlines how payments for property, exchanges of property, and other digital asset transactions are treated for tax purposes.
Federal officials say the updated reporting requirements aim to help taxpayers trust the system while improving oversight of digital assets reported on tax returns.
Before filing, taxpayers should review exchange statements, confirm digital asset wallet records, and ensure all digital asset transactions are reported correctly. In complex cases, consulting a tax professional may help clarify how digital assets should appear on a U.S. income tax return.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now