While cryptocurrency users have enjoyed relatively light reporting requirements for years, the IRS is about to flip the script with its new crypto broker reporting mandate set to take effect in 2025.
Starting that year, cryptocurrency exchanges, hosted wallet providers, and payment processors will be required to report digital asset sales on the newly created Form 1099-DA, providing both taxpayers and the IRS with detailed transaction information.
The rollout follows a phased implementation timeline. For 2025 transactions, brokers must report gross proceeds, transaction dates, and fair market value. Cost basis reporting gets a one-year reprieve until 2026, with real estate digital asset transactions joining the reporting regime that same year.
The IRS expects full implementation by 2027, including backup withholding rules to guarantee compliance.
By 2027, the IRS intends complete rollout with backup withholding mechanisms ensuring taxpayers can’t escape the reporting net.
Not all crypto entities are affected equally. The mandate specifically targets custodial platforms—those that actually take possession of users’ digital assets. Notably, unhosted wallet providers that only provide software are explicitly excluded from the broker definition.
Decentralized exchanges (DEXs) and non-custodial wallets get a temporary pass until at least 2027, creating what some call a “two-tier” reporting system.
The IRS is softening the initial blow with transitional relief. Brokers making good faith efforts to comply won’t face penalties for 2025 reporting mistakes, and there’s relief from backup withholding obligations that first year.
De minimis thresholds will also exempt certain stablecoin and NFT transactions from reporting requirements.
For everyday crypto users, this means a dramatic shift in how transactions are tracked and reported. The days of self-reporting with minimal oversight are ending, replaced by a system more akin to traditional investment reporting.
While this may simplify tax preparation by providing official records of transactions, it also signals increased IRS scrutiny of crypto-related income. This new system upholds the fundamental IRS position that cryptocurrency is property rather than currency for tax purposes.
This regulatory shift represents part of a broader trend as global regulators work to bring cryptocurrency into established financial frameworks.
The mandate aligns with global efforts like the OECD Crypto-Asset Reporting Framework, suggesting a worldwide trend toward standardized crypto tax reporting.
Industry lawsuits challenging the regulations continue, but crypto users should prepare now for this new era of transparency.
