IRS Finalizes Cryptocurrency Tax Reporting Rules for 2025

The Internal Revenue Service has finalized new regulations on cryptocurrency tax reporting that take effect on January 1, 2025. The rules require brokers to report digital asset transactions to the IRS, aligning cryptocurrency’s blockchain activity with existing tax forms for securities. The goal is to improve income reporting, determine capital gain accuracy, and strengthen compliance across all taxpayers for the upcoming tax year.

IRS Cryptocurrency Tax Reporting

Who Must Report and When

Beginning January 1, 2025, brokers that handle digital assets must report cryptocurrency transactions to the IRS. This includes exchanges, custodial wallet providers that hold assets for customers, payment processors, and cryptocurrency ATMs.

Non-custodial and decentralized platforms are not covered by these rules. Congress passed legislation under the Congressional Review Act repealing the IRS rule that would have extended broker reporting requirements to decentralized finance (DeFi) platforms and non-custodial wallet providers. President Trump signed that legislation into law on April 10, 2025 (H.J.Res. 25, Public Law 119-5), and the IRS has confirmed the repealed rule has no legal force or effect. DeFi participants and self-custody wallet users are therefore not subject to broker reporting requirements, though they remain responsible for accurately reporting their own digital asset gains and losses on their tax returns. Source: IRS Digital Assets page.

What Brokers Report

Brokers will report the full amount from each sale, trade, or exchange of crypto assets in 2025. Starting in 2026, they must add basis reporting to show what taxpayers originally paid to acquire each asset. These figures determine whether taxpayers have a short-term or long-term capital gain or loss, which must be included on their tax return.

Forms and Filing

The new Form 1099-DA will record digital asset proceeds from broker transactions, similar to Form 1099-B, which is used for reporting stock transactions. Taxpayers who sold cryptocurrency or used virtual currency for payments must report the income on their tax forms, either under capital assets or on Schedule C if they are self-employed. Independent contractors, employees paid in crypto, and businesses using cryptocurrency’s blockchain for services or transfers must also document these transactions.

Expected Impact and Relief

The Government Accountability Office and the Joint Committee on Taxation estimate that these rules could result in approximately $28 billion in increased income taxes over the next ten years. The IRS states that its goal is to help taxpayers report cryptocurrency correctly, calculate basis, determine deductions or credits, and file their returns without delays. Brokers making good-faith efforts to comply during the 2025 tax year will receive transition relief from penalties as the new system takes effect.

Digital Assets and Federal Tax Rules

How Cryptocurrency Is Taxed

The IRS classifies cryptocurrency and other digital assets as property rather than currency, meaning every sale, trade, or transfer can create a taxable event. When taxpayers sell cryptocurrency, they must calculate the difference between the sale price and the cost of acquiring it to determine whether they have a gain or a loss. Assets held for more than one year qualify for long-term capital gains treatment, while those sold within a year are taxed as ordinary income.

Reporting Income and Employment Connections

Independent contractors and self-employed individuals who are paid in virtual currency must report their income on Schedule C and pay the applicable Social Security tax and Medicare tax. Employees who receive digital assets from an employer must also include the full amount as taxable wages and pay income taxes accordingly. These payments, like other business transactions, are subject to standard reporting, filing, and recordkeeping requirements.

Policy Basis for the New Rules

The Infrastructure Investment and Jobs Act of 2021 required the Treasury Department to expand reporting for brokers handling digital assets. After reviewing more than 44,000 public comments, the IRS finalized its determination. The rules aim to ensure that income from cryptocurrency blockchain transactions is accurately documented and taxed, helping taxpayers file complete returns, report cryptocurrency accurately, and claim credits or refunds when eligible.

Reactions from IRS Officials and Industry Experts

IRS View on Enforcement

IRS Commissioner Danny Werfel stated that the agency’s updated rules on cryptocurrency tax reporting aim to strengthen compliance and ensure that all income is accurately reported and documented. “Digital assets are a growing part of the economy, and these regulations are critical to ensuring fairness,” Werfel said. “We need to make sure cryptocurrency is not used to hide taxable income.”

The IRS stated that the new framework helps taxpayers report income, determine cost basis, and file accurate tax forms for each transaction. The agency noted that this will enhance the detection of unreported asset transactions and reinforce existing procedures for capital asset sales, business payments, and investment exchanges.

Oversight and Policy Analysis

The Government Accountability Office stated that the expanded reporting could generate an estimated $28 billion in income tax revenue over the next decade, facilitating the preparation of more comprehensive tax returns for taxpayers. Policy experts at the Tax Foundation stated that Form 1099-DA will simplify recordkeeping, enabling taxpayers to calculate capital gains or losses, confirm deductions, and claim credits when eligible.

Industry Response

Industry reaction was mixed. Larger brokers and financial institutions welcomed standardized rules that align crypto with other capital assets. Smaller businesses and independent contractors said the added reporting could raise costs and complicate how they document trades, transfers, and service payments recorded through the blockchain of cryptocurrencies.

Reporting Guidance for Taxpayers and Next Steps

How to Report Crypto Transactions

Beginning with the 2025 tax year, taxpayers who sold crypto, traded digital assets, or used virtual currency for payments will receive Form 1099-DA from their broker. This form will summarize proceeds from sales or exchanges and provide the basis needed to calculate capital gain or loss. Taxpayers must report crypto activity on their tax return, even if they do not receive a form, particularly if they disposed of assets through wallets, peer-to-peer transfers, or the blockchain of the cryptocurrency.

Filing and Recordkeeping

Taxpayers should review all account records, determine the cost of each asset, and retain documents showing when it was acquired, sold, or transferred. Those engaged in business or self-employment are required to report income on Schedule C and pay Social Security tax and Medicare tax on their earnings. Employees who receive digital assets as part of compensation must include the full amount as ordinary income.

Compliance and Verification

The IRS advises taxpayers to use official pages with the locked padlock icon when downloading forms or filing returns online. The agency continues to review guidance for complex asset transactions, including mining and staking activities, and may issue additional rules to clarify treatment of long-term holdings, deductions, and refunds. More information is available on the IRS Digital Assets page and through official tax forms for the upcoming filing season.

Source Links

• IRS Final Regulations: Broker Reporting for Digital Assets (June 2024)
  
  
• GAO Report GAO-24-107028: IRS Digital Asset Reporting Readiness
  
  
• IRS Digital Assets Tax Guidance Page

By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now