I’ve been talking about U.S. digital asset brokering reporting for several years now. Last year U.S. taxpayers had to go through a one-time cost basis reallocation exercise from the elimination of universal tracking to a wallet by wallet and account by account tracking method. The 2024 exercise (Rev. Proc. 2024-28) was simply a tee up to the start of broker reporting in tax year 2025. If you traded on a centralized exchange like Coinbase, you’ll be getting the new 1099-DA.
TL;DR:
- Form 1099-DA creates three transaction categories: 1) fully reported (covered-securities), 2) partially reported (non-covered securities i.e. with proceeds only), and 3) unreported (DeFi, NFTs)
- Instead of simplifying compliance, taxpayers face triple the work tracking unreported transactions and providing missing cost basis
- Only crypto purchased after January 1, 2025, and kept on the same exchange qualifies as "covered"—everything else requires manual tracking
- Reporting begins in 2025 with proceeds only; full cost basis reporting doesn't start until 2026, creating two years of different compliance requirements
- The IRS designed 1099-DA to simplify crypto taxes, but it actually adds another reconciliation layer on top of existing obligations
- If you don't provide cost basis for non-covered securities, the exchanges will report a zero cost basis you have to fix
What are the new digital asset broker reporting requirements?
Starting with the 2025 tax year, the Infrastructure Investment and Jobs Act has ushered in a new regime for cryptocurrency taxation. Digital asset brokers—your Coinbases, Krakens, and Geminis of the world—are now required to report your transactions to the IRS using the shiny new Form 1099-DA (Digital Asset Proceeds from Broker Transactions).
If you thought crypto tax reporting was complicated before, you ain’t seen nothin’ yet. The IRS Form 1099-DA and new digital asset broker regulations were supposedly designed to make your life easier, but instead you get left with triple the work. The real reason for the regs is to increase tax revenue and close the tax gap; that is, get more taxpayers who weren’t reporting crypto to report and pay.
For a deeper dive on how we got here, check out some of my prior blogs talking about IRS crypto madness:
- The IRS Kills Crypto with Definitions (IRS Kills Crypto Part 1)
- IRS Kills DeFi by Calling It a Broker (IRS Kills Crypto Part 2)
- The IRS Tripled Your Crypto Tax Prep Cost (The IRS Kills Crypto Part 3)
- DeFi's Regulatory Reckoning (IRS Kills Crypto Part 4)
What is a "covered security" in crypto?
A covered security is a digital asset that brokers must track comprehensively—including cost basis—from acquisition to disposal. For crypto, this means the asset must be acquired on or after January 1, 2025, and remain in the broker's custody the entire time. The moment you transfer it to an external wallet or another exchange, it loses covered status permanently. This can work to your advantage as discussed later.
A non-covered security is everything else: crypto purchased before 2025, assets transferred between platforms, or any transaction where the broker doesn’t know your original cost basis. In this case, brokers report proceeds only and you have to find and report the cost basis.
Key Takeaway
Think of covered securities and non-covered securities as “covered crypto” and “non-covered crypto” where the IRS just borrowed existing terms instead of adapting the terms to crypto.
Why does 1099-DA create more work instead of less?
Here's where things turn into crypto tax chaos. The new regulations haven't simplified crypto tax reporting—they've multiplied the workload for both taxpayers and tax professionals. There are now three distinct categories of transactions, each requiring different handling.
Category #1: What crypto gets fully reported as covered securities?
Starting in 2026 (for the 2025 tax year), some transactions will appear on Form 1099-DA with complete information: proceeds, cost basis, gain/loss, and holding period.
Examples that may qualify as covered securities:
- Bitcoin purchased on Coinbase on February 1, 2025, and sold on the same platform later that year
- Ethereum bought and sold entirely on Kraken within the 2025 tax year
- Any crypto acquired and disposed of on a single centralized exchange after January 1, 2025
Key Takeaway
Covered securities only exist if you buy crypto after January 1, 2025, and never move it off the exchange. If you transfer it from Coinbase to your hardware wallet and then back to Coinbase it becomes non-covered, and you're back to tracking cost basis yourself. This makes the "simplification" benefit extremely limited for everyone, including anyone practicing self-custody.
Category #2: What crypto gets partially reported as non-covered securities?
Here's the messy part. Starting in 2025 (for the 2024 tax year), brokers must report proceeds for all digital asset sales, even when they don’t know the cost basis. These are non-covered securities.
For non-covered securities, Form 1099-DA shows:
- Sale proceeds (reported to you and the IRS)
- Cost basis listed as "unknown" or blank
- No gain/loss calculation
Examples of non-covered transactions:
- Crypto purchased before January 1, 2025 (all your existing holdings)
- Digital assets transferred into a crypto exchange from an external wallet
- Coins moved from one exchange to another, then sold
- Any sale where the broker lacks your original acquisition information
The IRS receives the proceeds information and expects you to provide the cost basis. If you don't, they'll assume your cost basis is zero tax on the entire proceeds amount. Enjoy that panic attack.
Category #3: What crypto doesn't get reported at all?
The vast majority of your crypto activity won't appear on any 1099-DA, especially for degens and anyone in DeFi. If you’ve been in crypto for a while, you’ve already been managing crypto tax software and calculations, so that part doesn’t change. But now you have triple the work.
Examples of completely unreported transactions:
- DeFi swaps on Uniswap, SushiSwap, or other decentralized exchanges
- NFT sales on OpenSea, Blur, or Magic Eden
- Peer-to-peer transactions using non-custodial wallets
- Staking rewards and liquidity pool distributions
- Airdrops and hard forks
- Crypto payments for goods and services (these may be reported elsewhere)
Key Takeaway
The 1099-DA reporting requirement only covers a narrow range of centralized exchange transactions—which represents a fraction of total crypto activity for most investors. DeFi, NFTs, staking, airdrops, and peer-to-peer transactions remain entirely on you to track and report. The new forms don't eliminate your existing record-keeping obligations; they add a massive new reconciliation layer on top of them.
How do you reconcile all three 1099-DA categories?
This is where "triple work" comes in. You need to:
First, continue to track and report all transactions in your crypto tax software the same way you have been (unless you are brand new, in which case you’ll still use crypto tax software).
Second, choose whether to provide cost basis for all non-covered securities where brokers only reported proceeds. If you don’t provide cost basis to your broker, then you’ll self-report on your tax return.
Third, verify that the cost basis and proceeds on covered securities are actually correct. Broker reporting for crypto can be error-prone. Compare exchange account proceeds and cost basis on a per asset basis to the related 1099-DA issued by the same exchange.
Fourth, verify that the proceeds on non-covered securities are actually correct. Compare exchange account proceeds on a per asset basis to the related 1099-DA issued by the same exchange. It’s the same process for covered securities above but without the cost basis comparison.
Fifth, ensure you're not double-reporting or omitting anything. If you've been diligently tracking everything yourself (as you should have been), you now need to reconcile your records with multiple 1099-DA forms.
How to fix and report issues requires a deeper dive in another blog. The IRS will receive your 1099-DA forms and match it to what you report. If there’s a mismatch, expect to get a tax notice.
Key Takeaway
Your 1099-DA reconciling goal is to report complete and accurate records and to avoid tax notices, which can be a giant headache to resolve. If you blindly trust those forms without comprehensive tracking, you'll likely overpay or underreport, in addition to getting tax notices— all of which become unique headaches.
When do these 1099-DA reporting requirements start?
The rollout happens in phases:
2025 (for 2024 tax year): Brokers report gross proceeds only—no cost basis required for any transactions. Everything is effectively non-covered for this first year.
2026 (for 2025 tax year): Full covered security rules kick in. Brokers must track and report cost basis for qualifying digital assets acquired on or after January 1, 2025.
What this means practically: any crypto you currently hold prior to January 1, 2025, is permanently non-covered (unless you self-report cost basis). Only new acquisitions starting January 1, 2025, can become covered securities, and only if you keep them within the broker's custody from purchase to sale.
Key Takeaway
Don't assume that receiving a 1099-DA means your tax reporting is done. For 2025 filings, you'll only get proceeds information. You still have to provide all cost basis yourself. Even when full reporting begins in 2026, the vast majority of your crypto will remain non-covered due to transfers, pre-2025 purchases, and DeFi activity. The 1099-DA is a supplement to your tracking, not a replacement.
What should crypto investors do now?
Start with meticulous record-keeping today. Use crypto tax software that aggregates transactions across multiple platforms, wallets, and DeFi protocols. Maintain detailed records of every acquisition date, amount, price, and source because you'll need to provide cost basis for anything that isn't a covered security (which is most things).
When you receive your 1099-DA forms starting in 2025, treat them as a starting point for reconciliation, not gospel truth. Cross-reference every transaction. For non-covered securities, have your cost basis documentation ready. For covered securities, verify the broker's calculations against your own records.
Most importantly, recognize that the new reporting requirements haven't reduced your compliance obligations. They've simply added another layer of documentation to cross-reference.
Key Takeaway
You’re likely to have multiple 1099-DA issues requiring fixes in reporting, so make sure you separately document the mismatches, including memos to describe the issues, as needed. Think of this as your personal crypto tax Rosetta stone that you can also use to report gains and losses on Form 8949.
Frequently asked questions about form 1099-DA
What is the difference between covered and non-covered crypto securities for digital assets?
Covered securities are digital assets acquired on or after January 1, 2025, that remain in your broker's custody from purchase to sale. Crypto exchanges report both proceeds and cost basis. Non-covered securities are everything else: crypto bought before 2025, transferred assets, or anything where the broker doesn’t know cost basis. For non-covered securities, brokers only report proceeds, leaving you to provide cost basis.
Do I need to report crypto transactions if I don't receive a 1099-DA?
Yes, absolutely. The IRS requires you to report all crypto transactions, regardless of whether you receive a 1099-DA. DeFi transactions, NFT sales, staking rewards, peer-to-peer trades, and any activity on non-custodial wallets won't generate a 1099-DA, but they're still taxable events you must report.
What happens if my 1099-DA shows unknown cost basis?
If your 1099-DA lists cost basis as "unknown," you must provide the actual cost basis on your tax return using your own records unless you self-reported cost basis to the exchange. If you fail to provide cost basis, the IRS will assume it's zero and they’ll tax you on the entire proceeds amount.
Can I just use the information from my 1099-DA to file my taxes?
Not entirely. While the 1099-DA provides helpful information for some transactions, you're still responsible for reporting all crypto activity, verifying the accuracy of broker reports, providing cost basis for non-covered securities, and tracking unreported transactions. The 1099-DA is a supplement to your own comprehensive records, not a complete tax solution.
Why doesn't my hardware wallet crypto appear on Form 1099-DA?
Digital assets held in self-custody wallets (e.g., hardware wallets, software wallets) aren't held by crypto exchanges, so there's no 1099-DA reporting for these transactions. You're entirely responsible for tracking and reporting any taxable events involving self-custody assets, including sales, swaps, and other activity.
Weigh in
Given the requirement to manually track "non-covered" securities, do you believe the 1099-DA will actually close the tax gap, or just drive traders away from centralized exchanges? Drop your thoughts in the comments below.
As always, your goal is to get a Crypto Bullseye™.
Yours in crypto,
