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The U.S. Treasury Department and the IRS on Friday published final tax filing rules for digital asset brokers, leaving crypto investors with limited time to prepare, experts say.
Mandatory annual reporting will be phased in starting in 2026, with digital currency brokers required to cover gross proceeds from sales made in 2025 via Form 1099-DA. In 2027, brokers will be required to record the cost or purchase price for certain digital asset sales made in 2026.
“These regulations are an important part of the larger tax compliance effort for high-income individuals,” IRS Commissioner Danny Werfel said in a statement. “We must ensure that digital assets are not used to hide taxable income, and these final regulations will improve detection of non-compliance in the high-risk digital asset sector.”
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The annual reporting of digital assets, passed in 2021 through the Inflation Reduction Act, was expected to increase inflation. almost 28 billion dollars more than a decade, according to the Joint Committee on Taxation. However, the original start date was postponed.
The new IRS rules come into effect about four months after the agency hired two former crypto executives to improve digital currency services, reporting, compliance and enforcement.
“Everyone was waiting for the flood of this enforcement activity,” James Creech, an attorney and senior manager at accounting firm Baker Tilly, previously told CNBC.
Base will be 'wallet specific'
With limited reporting on a baseline, crypto investors have the opportunity to determine a “reasonable allocation” before Jan. 1, 2025, according to an IRS revenue procedure released Friday.
Taxpayers will have to establish a basis for each digital currency wallet by the end of 2024, said Matt Metras, a Rochester, New York-based registered agent and owner of MDM Financial Services.
If you buy digital currencies over multiple years and through multiple wallets, you currently have “different base lots,” he said.
Crypto tax software often uses the best basis of your combined accounts to calculate profits. But in the future, the basis of each asset should be “specific to the wallet,” Metras said.
It is important to establish the basis for the digital currency. If you cannot prove your basis, the IRS generally considers it to be zero, resulting in a higher profit.
'The most important tax year' for filing
The new crypto tax filing rules do not apply to the upcoming tax season.
“However, 2024 is the most important tax year for crypto investors,” said Andrew Gordon, tax attorney, CPA and president of Gordon Law Group.
2024 is the most important tax year for crypto investors.
Andrej Gordon
Chairman of Gordon Law Group
For 2024, you’ll still need to collect crypto data and report your activity accurately, including your cost price. Starting in 2025, the IRS will have a “fire hose of information” to verify that previous reporting was accurate, Gordon said.
