The 2025 tax year is the first year in which crypto brokers were required to issue Form 1099-DA reporting gross proceeds from digital asset transactions. For independent EROs preparing 2025 returns in 2026, this means clients will arrive with 1099-DAs they may not fully understand, exchanges they used that may or may not have issued any form, and a basis history that brokers are not yet required to report. The gap between what clients expect the form to tell them and what it actually contains is substantial. Navigating it accurately is now a core return-preparation skill.
For the complete practitioner workflow covering 2026 covered-basis 1099-DA reporting, including the covered vs. non-covered distinction, Form 1099-DA box structure, and mixed-lot reconciliation, see our 1099-DA Covered Basis Reporting Guide.
This guide covers the Form 1099-DA landscape for 2025 returns: why this year is the first real 1099-DA season, the intake questions practitioners must add to their client screening process, the box-by-box anatomy of Form 1099-DA, Form 8949 routing for digital asset transactions, handling blank or incorrect cost basis fields, the wash sale rule and its applicability to digital assets, staking and airdrop income treatment, NFT classification, digital assets received as compensation, reconciling multiple exchange transactions, state treatment variations, and a scalable crypto workflow for practitioners building this service line.
All IRS positions cited in this guide should be verified at IRS.gov before applying to any specific client situation. Digital asset tax guidance remains an active area of regulatory development; verify the current IRS position before advising clients on any digital asset tax question. This guide does not constitute tax advice for any specific client situation.
Why 2025 Returns Are the First Real 1099-DA Season: What Changed, Who Must Issue the Form, and What It Covers
Form 1099-DA for gross proceeds began with the 2025 tax year. Mandatory cost basis reporting begins for digital assets acquired on or after January 1, 2026, meaning the first 1099-DAs with basis data will arrive in early 2027 for the 2026 tax year. For 2025 returns, practitioners should expect gross proceeds reporting but blank or zero cost basis in most cases.
Who is required to issue Form 1099-DA
The IRS regulations implementing broker digital asset reporting define "digital asset broker" broadly to include cryptocurrency exchanges and hosted wallet providers. Major centralized exchanges (Coinbase, Kraken, Gemini, and others) are the primary issuers for 2025. Congress repealed the DeFi broker reporting requirements; decentralized exchange operators are not subject to broker reporting under current law. Verify the applicable statutory reference and effective date at IRS.gov.
What Form 1099-DA covers and does not cover
For the 2025 tax year, Form 1099-DA covers gross proceeds from dispositions of digital assets through broker accounts. It does not cover transactions on decentralized exchanges where no qualifying broker is involved, peer-to-peer transfers, or transactions in self-custody wallets with no broker intermediary. A client who traded exclusively on a major exchange will have a 1099-DA; a client who traded on a decentralized exchange or from a hardware wallet will not. In the second case, the practitioner must rely on the client's own transaction records.
COST BASIS REPORTING TIMELINE
Form 1099-DA for gross proceeds began with the 2025 tax year. Mandatory cost basis reporting begins for digital assets acquired on or after January 1, 2026, meaning the first 1099-DAs with basis data will arrive in early 2027 for the 2026 tax year. Blank basis fields on 2025 Form 1099-DAs are the expected first-year condition, not an error. Practitioners should communicate this clearly to clients who expect the 1099-DA to contain the same basis information as a traditional brokerage 1099-B.
The Digital Asset Intake Question: What to Ask, Why Prior Returns Matter, and How to Update Your Engagement Letter
The IRS Form 1040 digital asset question (currently on the front page of Form 1040) requires every taxpayer to answer whether they received, sold, exchanged, or otherwise disposed of any digital asset. The question covers more than just sales: it includes receiving digital assets as payment for goods or services, receiving staking rewards, receiving airdrops, receiving digital assets as compensation, and exchanging one digital asset for another. A client who answers "no" incorrectly creates a return error.
Intake questions to add to your client questionnaire
The digital asset intake screening should cover: (1) Did you buy, sell, receive, exchange, or otherwise dispose of any cryptocurrency, NFT, or other digital asset in 2025? (2) Did you receive any digital assets as payment for services, as staking rewards, as airdrops, or through any mining activity? (3) Do you hold digital assets in any foreign exchange or foreign wallet? (4) Did you receive any Form 1099-DA from a broker? (5) What exchanges or wallets did you use, and do you have transaction history from each? Prior-year returns matter because a client who reported a digital asset loss in a prior year may have a carryforward that affects the current-year computation.
Engagement letter scope language for crypto clients
Digital asset returns require scope limitations that traditional returns do not. The engagement letter should specify: (1) that the client is responsible for providing complete and accurate transaction records from all exchanges and wallets; (2) that if cost basis cannot be determined from the records provided, the practitioner will use the methodology documented in the file but cannot guarantee the accuracy of basis on incomplete records; and (3) that transactions on decentralized exchanges and self-custody wallets may not be covered by any third-party reporting and require the client's own complete records. See the tax preparer engagement letter and intake guide for scope language frameworks that cover digital asset returns. When using third-party crypto tax software to process client data, review disclosure obligations under Section 7216; see the Section 7216 consent and disclosure guide for the consent requirements that apply when sharing client data with software vendors.
Form 1099-DA Anatomy: Box-by-Box Breakdown and What Is Not Included in the First-Year Form
The 2025 Form 1099-DA collects several data fields that differ from the traditional 1099-B. Understanding what each field contains, and what it does not contain, prevents both over-reliance on the form and misreporting.
Gross proceeds (Box 1d)
Box 1d reports the total gross proceeds from the disposition of digital assets. This is the amount received, not the gain or loss. Gross proceeds with no corresponding basis information does not tell the practitioner how much tax is owed; it tells them how much the client received from selling. The gain or loss calculation requires cost basis, which is not reported for the 2025 tax year.
Cost or other basis (Box 1e) -- expected to be blank for 2025
Box 1e is the cost basis field. For the 2025 tax year, broker basis reporting is not yet required, so this box will be blank or zero on most 2025 Form 1099-DAs. A blank Box 1e does not mean the asset has zero basis; it means the broker was not required to report basis. The practitioner must establish basis from the client's own records.
Transaction date and acquisition date
The form captures both the date of sale (for determining the capital gain or loss) and, where available, the acquisition date (for determining short-term vs. long-term holding period). When the acquisition date is missing from the form, the practitioner must obtain it from the client's purchase records.
Digital asset description and units
The form identifies the digital asset sold (by name or ticker symbol) and the number of units disposed of. When a client sold fractional amounts of multiple assets across multiple transactions, the 1099-DA may be a multi-page document. Each line represents a separate transaction that must be entered separately on Form 8949.
Form 8949 Routing for Digital Assets: Which Boxes to Use and Why Digital Assets Do Not Use Box C or Box F
Form 8949 requires the practitioner to check one of six boxes indicating how the transaction is categorized for basis-reporting purposes. The six boxes are divided into short-term (A, B, C) and long-term (D, E, F). For digital asset transactions, the correct box depends on whether a Form 1099-DA was issued and whether basis was reported on the form.
Box selection for 2025 digital asset transactions
When a Form 1099-DA was issued with gross proceeds but no cost basis (the standard 2025 condition): use Box B for short-term transactions (held one year or less) and Box E for long-term transactions (held more than one year). These boxes indicate that a 1099-DA was issued but basis was not reported to the IRS. For the 2025 tax year, the vast majority of 1099-DA transactions fall in Box B or Box E.
When no Form 1099-DA was issued (decentralized exchange transactions, peer-to-peer transactions, self-custody wallet dispositions): use Box C for short-term and Box F for long-term. These boxes indicate that no information return was issued. Box C and Box F are also appropriate when a client traded on a platform that was not yet required to issue a 1099-DA.
Box A (short-term, basis reported to IRS) and Box D (long-term, basis reported to IRS) should not be used for most 2025 digital asset transactions because brokers are not yet required to report basis for 2025 acquisitions. Using Box A or Box D when basis was not actually reported creates a mismatch that may generate an IRS notice.
Missing or Blank Cost Basis: The First-Year Problem, Basis Reconstruction, and Adequate Disclosure Obligations
The single most common practical challenge in 2025 digital asset return preparation is the absence of cost basis. Basis reporting by brokers begins only for digital assets acquired on or after January 1, 2026. For assets acquired before that date, the practitioner must establish basis from non-IRS sources.
Basis reconstruction sources
In order of reliability: (1) original purchase confirmations from the exchange, showing price paid and date of acquisition; (2) complete transaction history exports from the exchange account, which typically include all buys, sells, transfers, and fees; (3) bank or credit card records showing payments made to the exchange; (4) third-party crypto tax software (such as CoinTracker, Koinly, or CoinLedger) that imports transaction histories and computes basis using the client's designated cost basis method (FIFO, HIFO, or specific identification); and (5) the client's own records, including screenshots, email confirmations, or personal records.
Cost basis methods: FIFO is the default
The IRS has generally treated FIFO (first-in, first-out) as the default basis method for digital assets when no specific identification election is made. Specific identification (HIFO: highest-in, first-out, or LIFO: last-in, first-out) is permissible if the client maintains adequate records to support the specific identification. Once a method is selected for a given exchange account, consistency matters. Document the method used in the client file.
When basis cannot be fully established
If basis cannot be established for some or all transactions, the practitioner must decide whether to report zero basis (which overstates gains), use a best-estimate methodology with adequate disclosure, or decline to prepare the return without complete records. Reporting zero basis when the practitioner knows or has reason to know the actual basis was greater than zero is not a compliant approach. The better practice is to document what records were available, what methodology was used to estimate basis, and why, and to consider whether Form 8275 disclosure is warranted for positions taken on incomplete basis records.
DO NOT REPORT ZERO BASIS WHEN BASIS IS KNOWN TO BE GREATER
Reporting zero cost basis when the preparer knows the client paid something for the digital asset overstates the capital gain and produces an incorrect return. Zero basis is not a conservative position; it is a wrong position. The correct approach is to reconstruct basis using the best available records, document the methodology, and disclose any uncertainty in the file. Non-disclosure of a client's digital asset holdings may trigger penalties; verify current penalty provisions for non-disclosure at IRS.gov before advising clients.
The Wash Sale Rule and Digital Assets: Why IRC 1091 Generally Does Not Apply and the Tokenized Securities Exception
Digital assets classified as property under IRS guidance are generally not subject to the IRC 1091 wash sale rule; verify the current IRS position at IRS.gov before advising clients, as regulatory guidance on tokenized securities may differ.
Why property-classified digital assets fall outside IRC 1091
IRC 1091 disallows a loss deduction when the taxpayer sells "stock or securities" and repurchases substantially identical stock or securities within 30 days before or after the sale. The IRS has classified most cryptocurrencies (Bitcoin, Ethereum, and similar assets) as property under Notice 2014-21, not as stock or securities. Property classification places these assets outside the literal scope of IRC 1091 as currently interpreted. This means a client who sells Bitcoin at a loss and repurchases Bitcoin the next day can recognize the loss for tax purposes, a result not available for stocks.
The tokenized securities exception
Tokenized securities, which are digital tokens that represent ownership interests in traditional securities (such as tokenized stocks or tokenized bonds), may be treated differently. A tokenized security that represents an interest in stock may be classified as stock or a security, in which case IRC 1091 would apply. This area of guidance is developing; verify the current IRS position at IRS.gov before advising clients on wash sale treatment of any tokenized digital asset that might be characterized as a security.
Practical implication: the wash sale question on the intake form
Because the wash sale rule does not currently apply to property-classified digital assets, practitioners should not apply IRC 1091 adjustments to standard cryptocurrency transactions. However, if a client holds tokenized securities or digital assets with an unclear classification, the issue must be evaluated before the return is completed. Document the classification analysis in the client file.
Staking, Airdrops, and Hard Forks: How These Events Create Ordinary Income and Where to Find the Amount
Three common digital asset events that are not sales or exchanges create ordinary income that practitioners frequently miss during return preparation: staking rewards, airdrops, and hard forks.
Staking rewards: ordinary income upon receipt
The IRS treats staking rewards as ordinary income upon receipt per Rev. Rul. 2023-14; verify at IRS.gov for any subsequent guidance. The fair market value of staking rewards at the time of receipt is gross income, regardless of whether the rewards are immediately sold or held. The date of receipt establishes both the income recognition date and the beginning of the holding period for the acquired assets. Staking rewards received in the course of a trade or business belong on Schedule C; staking rewards received by an individual investor who is not in the trade or business of staking belong on Schedule 1.
Airdrops: taxable as ordinary income when received
Under IRS Rev. Rul. 2023-14, airdropped digital assets are taxable as ordinary income at their fair market value when the taxpayer gains dominion and control over them. The critical date is when the airdropped assets are credited to the taxpayer's wallet or exchange account, not when they are sold. Many clients do not realize that airdrops they never intentionally sought have created taxable income. During intake, ask specifically whether the client received any unexpected digital asset deposits in their wallet or exchange account.
Hard forks: ordinary income only when dominion and control are established
A hard fork creates a new cryptocurrency by splitting the blockchain. Under IRS guidance, if the taxpayer receives new cryptocurrency as a result of a hard fork and has dominion and control over the new coins, the fair market value at the time of receipt is ordinary income. If the new coins are credited to a custodial exchange account, the receipt date is when the exchange makes them available for transfer or sale. If the exchange does not support the forked asset and the coins are inaccessible, income recognition may be deferred until the coins are accessible.
NFTs: When an NFT Is a Collectible (28% Rate) vs. a Capital Asset and How to Identify the Holding Period
Non-fungible tokens (NFTs) present a distinct characterization question. Most NFTs are capital assets subject to the standard short-term and long-term capital gain rates. However, an NFT that represents a collectible (as defined under IRC 408(m)(2)) is subject to the 28% maximum capital gain rate for long-term holdings, rather than the standard 20% rate that applies to other long-term capital assets.
The IRS collectible analysis for NFTs
The IRS released Notice 2023-27 describing a "look-through" approach for NFTs: an NFT that conveys ownership of a physical or digital object that would itself be a collectible (art, antiques, gems, coins, stamps, alcoholic beverages, or other tangible personal property specified in IRC 408(m)(2)) is treated as a collectible for tax purposes. An NFT that represents a digital artwork that is functionally a collectible is therefore subject to the 28% rate. An NFT representing membership access, gaming items, or other non-collectible assets is generally a capital asset at the standard rate. Practitioners should ask clients to describe what the NFT actually represents before applying the rate.
Holding period for NFTs
The holding period for an NFT begins on the date of purchase. When an NFT was received as compensation (from an employer or as a freelance payment), the holding period begins on the date of receipt and the basis is the fair market value included in income at that time. When an NFT was created by the taxpayer (minted), the characterization may shift from capital to ordinary income if it is sold in the course of a trade or business as inventory.
Reporting Digital Assets Received as Compensation: W-2 vs. Schedule C vs. Schedule 1
The reporting location for digital assets received as compensation depends on the recipient's relationship with the payer. Placing it on the wrong schedule is a return error.
Employee compensation: W-2
When an employer pays an employee in digital assets, the fair market value of the digital assets is includible in W-2 wages, subject to federal income tax withholding, Social Security tax, and Medicare tax. The employer is required to withhold on this amount. If the employer did not properly withhold, the employee reports the amount as wages on Form 1040 and pays any under-withholding. The FMV at the time of payment establishes the employee's basis in the digital assets for any subsequent sale.
Self-employment income: Schedule C
When a self-employed individual (sole proprietor or single-member LLC) receives digital assets as payment for services, the FMV at the time of receipt is self-employment income reported on Schedule C. The income is also subject to self-employment tax on Schedule SE. A freelancer paid in cryptocurrency has the same tax obligations as one paid in cash; the digital asset form of payment does not create a tax-deferred event.
Investment-related income: Schedule 1
Staking rewards, mining income received by an individual not in the trade or business of mining, and airdropped assets are generally reported as other income on Schedule 1, Line 8z, with an appropriate description. Interest earned in digital assets from lending or other passive investment activities is also reported on Schedule 1 or Schedule B as applicable.
Multiple Exchange Reconciliation: Aggregating Transactions When the Client Has No Consolidated 1099-DA
Clients who traded on multiple exchanges, transferred assets between exchanges, or moved assets between exchanges and self-custody wallets create a reconciliation challenge. Assets transferred between accounts do not create a taxable event, but they do require careful basis tracking.
Transfers between accounts are not taxable dispositions
Moving cryptocurrency from one exchange account to another, or from an exchange to a personal wallet, is generally not a taxable event. However, the receiving exchange may issue a 1099-DA reflecting the transferred amount as if it were a purchase at the current FMV. This creates an apparent gain on the receiving exchange's 1099-DA that does not exist. Practitioners must reconcile transfers across exchanges to prevent double-counting proceeds or overstating gains. The practical solution is to obtain the complete transaction histories from all exchanges and wallets and reconcile transfers out of one account against transfers into another.
Using crypto tax software for multi-exchange clients
For clients with significant activity across multiple exchanges, third-party crypto tax software that imports API data directly from each exchange is the most reliable reconciliation tool. These tools track basis through transfers and produce a consolidated Form 8949 export. When using such software, the practitioner should review the output for accuracy before importing it into TaxWise; software that mischaracterizes transfers as sales will overstate gain. When sharing client data with third-party software vendors, review the Section 7216 consent requirements that apply. See the Section 7216 consent and disclosure guide for the consent procedures that protect the practitioner when client data is shared with software vendors.
Foreign exchange accounts and FBAR interaction
Clients who hold digital assets on foreign exchanges may have FBAR reporting obligations if the exchange qualifies as a foreign financial account. The FBAR filing requirement applies to accounts with an aggregate high balance exceeding a threshold during the calendar year (verify the current threshold at IRS.gov and FinCEN.gov). See the FBAR foreign account compliance practitioner guide for the foreign financial account screening questions, FinCEN Form 114 filing procedure, and the interaction with Form 8938 that applies when digital assets are held on foreign exchanges.
State Treatment of Digital Asset Gains: States That Do Not Conform to Federal Treatment or Impose Additional Reporting
Most states follow federal character rules for digital asset gains (treating them as capital gains or ordinary income based on the federal classification), but practitioners filing returns in states with specialized treatment or nonconformity must verify the state position. For the broader OBBBA state nonconformity context that affects many digital asset-related provisions, see the state OBBBA conformity practitioner guide.
California
California generally conforms to federal treatment of digital asset gains as capital gains. California does not have a preferential rate for long-term capital gains; all capital gains are taxed as ordinary income at California rates. Verify California's current conformity date with the California Franchise Tax Board at ftb.ca.gov before filing 2025 state returns; the conformity date is subject to California legislative action.
New York
New York generally follows federal characterization of digital asset transactions. New York does not have a preferential rate for long-term capital gains; gains are taxed at ordinary income rates. Verify New York's current treatment with the New York Department of Taxation and Finance at tax.ny.gov before relying on any specific state conformity position.
State-specific digital asset reporting requirements
Some states have enacted or proposed their own digital asset reporting requirements that may differ from federal Form 1099-DA rules. Verify the current state-level digital asset reporting requirements in any state where the client has digital asset activity, particularly in states that have enacted blockchain or digital asset legislation.
Building a Scalable Crypto Tax Workflow: Intake Checklist, Software Evaluation, and Documentation Standards
Practitioners who want to serve crypto clients efficiently need a repeatable workflow that does not require rebuilding the process from scratch for each new return. The following framework is the foundation of a scalable crypto tax service line.
Intake: the six questions every crypto client must answer
Before preparing any digital asset return: (1) Which exchanges and wallets did you use in 2025? (2) Do you have a Form 1099-DA from any exchange? (3) Do you have complete transaction histories from each exchange and wallet? (4) Did you receive any digital assets other than through purchase (staking, airdrops, employer payment, gifts)? (5) Did you transfer assets between accounts? (6) Do you hold any digital assets on a foreign exchange? The answers to these six questions determine which data sources are needed, whether FBAR screening is triggered, and whether the engagement is within the practitioner's scope.
Software tool evaluation criteria
The primary criteria for evaluating crypto tax software for practitioner use are: (1) exchange API integration coverage (does it connect to the exchanges your clients use?); (2) ability to handle transfers between accounts without treating them as taxable events; (3) TaxWise-compatible export format for Form 8949 data; (4) basis method selection (FIFO, HIFO, specific identification); (5) auditability of the output (can you trace any gain/loss figure back to the underlying transaction?); and (6) data security and Section 7216 compliance posture. Evaluate the vendor's SOC 2 compliance and data retention practices before using it with client data.
Documentation standards for the practitioner file
The client file for a digital asset return should contain: all Form 1099-DAs received, complete exchange transaction histories or software export used as the basis for the return, the basis reconstruction methodology and any assumptions made, the Form 8949 (or multiple Forms 8949) as prepared, notes on the cost basis method used, and the Section 7216 consent if third-party software was used to process client data. This documentation supports the return if the IRS requests substantiation and demonstrates the practitioner's due diligence.
March 2026 IRS Proposed Regulations: Alternative Electronic Furnishing Consent
In March 2026, the IRS issued proposed regulations providing an alternative electronic furnishing consent procedure for custodial brokers issuing Form 1099-DA to customers. Understanding how these proposed rules work matters for practitioners building client intake workflows around 1099-DA delivery.
Under the proposed rule, a custodial broker may furnish Form 1099-DA electronically to a customer who affirmatively opts into electronic delivery through the broker's own platform or account settings. This alternative procedure, if finalized, would allow brokers to satisfy the electronic furnishing requirement without a separate paper consent form meeting the pre-existing regulatory standards. The affirmative opt-in through the platform itself serves as the operative consent under the proposed framework.
This is a proposed rule. It has not been finalized as of the date of this guide. Practitioners should not advise clients to rely on this alternative procedure until it is final and its effective date is confirmed. The IRS may finalize the rule as proposed, modify it, or withdraw it. Monitor IRS.gov for finalization status and verify specific requirements there (cite as: IRS proposed regulations issued March 2026).
Client impact: taxpayers who have opted into electronic delivery at their custodial broker may receive their Form 1099-DA electronically under this alternative procedure if their broker implements it after finalization. Taxpayers who have not opted into electronic delivery may still receive paper forms. When screening clients at intake, ask whether they have configured electronic delivery preferences at each custodial exchange. Clients unaware of an electronic 1099-DA sitting in a broker portal account they rarely log into are a common source of missed or late-arriving forms. Adding this to the intake checklist reduces that gap.
IMPORTANT: THIS GUIDE IS INFORMATIONAL, NOT TAX ADVICE
Digital asset tax guidance is an area of active IRS regulatory development. All positions described in this guide must be verified at IRS.gov before applying to any specific client situation. Verify the current IRS position on wash sale treatment of tokenized securities at IRS.gov before advising clients. Verify current penalty provisions for non-disclosure of digital asset holdings at IRS.gov. This guide does not constitute tax advice for any specific client situation.
Regulated Claims and Verification Requirements
The following claims in this guide require verification before applying to any return: (1) Cost basis reporting timeline: Form 1099-DA for gross proceeds began with the 2025 tax year; mandatory cost basis reporting begins for digital assets acquired on or after January 1, 2026, meaning the first 1099-DAs with basis data will arrive in early 2027 for the 2026 tax year. (2) Wash sale rule inapplicability: digital assets classified as property under IRS guidance are generally not subject to the IRC 1091 wash sale rule; verify the current IRS position at IRS.gov before advising clients, as regulatory guidance on tokenized securities may differ. (3) Staking income: the IRS treats staking rewards as ordinary income upon receipt per Rev. Rul. 2023-14; verify at IRS.gov for any subsequent guidance. (4) Non-disclosure penalty amounts: verify current penalty provisions for non-disclosure of digital asset holdings at IRS.gov. (5) FBAR threshold for foreign exchange accounts: verify the current threshold at IRS.gov and FinCEN.gov.
Related Guides for Digital Asset and International Compliance
Digital asset reporting intersects with foreign account disclosure, client consent requirements, engagement letter scope, and state-level conformity. These guides cover the adjacent practitioner workflows:
- FBAR Foreign Account Compliance Practitioner Guide: FinCEN Form 114 filing requirements for foreign accounts, including foreign exchange accounts that hold digital assets
- Section 7216 Consent and Disclosure Guide: consent requirements that apply when sharing client data with third-party crypto tax software vendors
- Tax Preparer Engagement Letter and Intake Guide: scope language and data source limitation clauses for digital asset clients
- State OBBBA Conformity Practitioner Guide: state treatment of digital asset gains, including state-level nonconformity to federal characterization provisions
- IRC 1091 Wash Sale Rule: Digital Assets and Form 8949: digital assets are property, not securities, so the wash sale disallowance of IRC 1091 does not apply under current law; this guide covers the mechanics, the documentation obligation, and the interaction with Form 1099-DA
Clients with digital asset holdings may also have exposure to foreign investment vehicles that qualify as PFICs under the passive income and asset tests. The PFIC recognition and referral guide covers PFIC intake screening, the OBBBA IRC 958(b)(4) restoration issue, Form 8621 requirements, and when to refer PFIC matters to an international tax specialist.
Frequently Asked Questions
Why is the 2025 tax year the first real Form 1099-DA filing season?
Form 1099-DA for gross proceeds began with the 2025 tax year. Mandatory cost basis reporting begins for digital assets acquired on or after January 1, 2026, meaning the first 1099-DAs with basis data will arrive in early 2027 for the 2026 tax year. For 2025 returns, practitioners will see gross proceeds on 1099-DAs but blank or zero cost basis in most cases. This is the expected first-year condition and reflects the phased implementation of broker reporting requirements, not an error on the form.
Does the wash sale rule apply to cryptocurrency and digital assets?
Digital assets classified as property under IRS guidance are generally not subject to the IRC 1091 wash sale rule; verify the current IRS position at IRS.gov before advising clients, as regulatory guidance on tokenized securities may differ. The IRS classifies most cryptocurrencies as property, placing them outside the literal scope of IRC 1091. However, tokenized securities that represent stock or securities interests may be treated differently. Verify the current IRS position at IRS.gov before advising any client on wash sale treatment of a specific digital asset.
How should a practitioner handle blank cost basis fields on Form 1099-DA?
Blank or missing cost basis on Form 1099-DA is the expected condition for the 2025 tax year. Practitioners must reconstruct basis from client records: exchange transaction histories, purchase confirmations, bank records, or third-party crypto tax software that imports exchange data. Zero basis should not be reported when the practitioner knows the client paid something for the asset. Document the basis methodology used and retain it in the client file.
How is staking income reported on a federal tax return?
The IRS treats staking rewards as ordinary income upon receipt per Rev. Rul. 2023-14; verify at IRS.gov for any subsequent guidance. The fair market value at the time of receipt is includible in gross income and establishes the basis for the received assets. Staking rewards received in the course of a trade or business belong on Schedule C; those received by an individual investor generally belong on Schedule 1 as other income.
Which Form 8949 boxes are used for digital asset transactions?
For the 2025 tax year, most digital asset transactions with a Form 1099-DA issued (but no basis reported) use Box B (short-term, basis not reported to IRS) or Box E (long-term, basis not reported to IRS). Transactions with no 1099-DA (decentralized exchange, peer-to-peer, self-custody wallet) use Box C (short-term) or Box F (long-term). Box A and Box D should not be used for 2025 digital asset transactions because brokers are not yet required to report basis for 2025 acquisitions.