Form 1099-DA for Digital Assets

Take outs:

• Platforms like crypto exchanges, NFT marketplaces, and payment apps must report users' digital asset transactions (e.g., sales, trades) to the IRS using Form 1099-DA to ensure tax compliance.
  
  
• Individual investors, merchants accepting crypto, miners, wallet providers, and certain DeFi platforms are generally exempt—unless they act as intermediaries or brokers.
   
• While the form simplifies crypto tax reporting and improves transparency, it raises privacy concerns, adds compliance burdens for brokers, and may lead to reporting errors or confusion for users unfamiliar with crypto tax rules. 

Form 1099-DA for Digital Assets

The IRS Form 1099-DA is a new form created to assist taxpayers in reporting digital asset transactions, including cryptocurrencies (e.g., Bitcoin, Ethereum) and non-fungible tokens (NFTs). With the growing digital asset market, maintaining proper records of these transactions for tax purposes is becoming increasingly critical for both individuals and the IRS. The new form is designed to ensure tax compliance and curb underreporting in this rapidly growing market.

Who Must File Form 1099-DA?

Digital asset brokers must file Form 1099-DA. The Infrastructure Investment and Jobs Act (IIJA) of 2021 defines brokers as platforms that allow the buying, selling, or exchanging of digital assets, such as cryptocurrencies and NFTs.

Examples of Brokers Who Must File 1099-DA:

At present, IRS Notice 2024-57 outlines certain activities like wrapping and unwrapping, liquidity provision, staking, lending, short sales, and notional principal contracts are exempted from reporting requirements. This exemption applies to both traditional brokers and DeFi platforms that do not track these transactions in the same way traditional platforms do.

DeFi platforms are not currently required to file Form 1099-DA unless they change their operations to take on the role of intermediaries that track and report transactions.

Who is Exempt from Filing Form 1099-DA?

Not every person or platform dealing with digital assets must file Form 1099-DA. The following groups are generally exempt from the reporting requirements: 

What Does Form 1099-DA Report?

Form 1099-DA is used to report transactions involving digital assets. When brokers submit this form, they provide essential information that allows both the taxpayer and the IRS to track digital asset sales, swaps, and exchanges for tax purposes.

Important Information Reported on Form 1099-DA:

When Do Brokers Begin Reporting Form 1099-DA?

Starting in 2025, brokers must report digital asset sales to the IRS using the new Form 1099-DA. This reporting applies to transactions that occur in 2025, with forms issued to taxpayers in early 2026. Although the Infrastructure Investment and Jobs Act (IIJA) of November 2021 introduced this reporting mandate, the IRS extended the implementation timeline to give brokers adequate time to comply.

Key Points for 2025:

• It is mandatory for brokers to report the gross proceeds (the total amount received from a sale) on Form 1099-DA.
• Reporting of cost basis (the original purchase amount) is voluntary for 2025. Brokers that choose to report basis will receive penalty relief if errors occur. 

Looking Ahead — 2026 and Beyond:

• Brokers will be mandated to report both gross proceeds and basis information for covered securities—meaning digital assets acquired on or after January 1, 2026, in accounts where brokers provide custodial services.
• For assets acquired before 2026 (nonconventional securities), reporting basis remains voluntary.  

Important Dates:

• January 2026: Brokers must furnish Form 1099-DA to taxpayers for 2025 transactions.
• Early 2026: Brokers must file 1099-DA forms with the IRS for 2025 transactions. 

Significance of Form 1099-DA:

Form 1099-DA is crucial for maintaining tax compliance in the growing digital asset market. It provides several key benefits:

Advantages for Taxpayers:

Form 1099-DA provides several advantages for taxpayers, making the tax filing process easier:

Disadvantages of Form 1099-DA:

Taxpayer Tips for Form 1099-DA:

In summary, Form 1099-DA plays an important role in enhancing transparency and compliance within the digital asset market. By requiring brokers to report specific transaction details, the form helps taxpayers accurately report their gains or losses from cryptocurrency and NFT transactions. As the IRS continues to tighten regulations around digital currencies, it’s vital for taxpayers to familiarize themselves with Form 1099-DA to stay compliant and avoid penalties. Being proactive in reporting and tracking digital asset transactions will make the tax process more straightforward and help clarify the complexities of the rapidly evolving digital finance landscape.

DISCLAIMER: The information in this article was sourced from: irs.gov/pub/irs-pdf/f1099da.pdf. The information provided in this article is intended solely for informational purposes. It is prepared to keep you updated with the latest changes and proposals related to cryptocurrency tax laws issued by the IRS. While we strive to offer accurate and timely information, please note that the article does not constitute legal or financial advice. For any questions about upcoming tax law changes, please contact our team at Kelly+Partners.