Cryptocurrency tax reporting entered a new era in 2025 when the IRS began receiving Form 1099-DA from brokers, exchanges, and custodians. For the first time, the agency has a complete transaction log for most crypto activity — sales, exchanges, staking rewards, airdrops, and hard forks. This article explains what the new reporting rules mean for your 2026 tax return, how to reconcile your own records with what the IRS received, and what to do if your crypto activity went unreported.
The 1099-DA form: what it covers
Form 1099-DA replaces the older 1099-B and 1099-K approaches that previously applied to digital assets. Starting with tax year 2025, reportable digital asset transactions must be reported on this single form. The form captures:
- Sales or exchanges of digital assets for fiat currency or other property
- Staking rewards received during the year
- Airdrops and hard forks that are includible in gross income
- Cost basis information for dispositions (where available)
Brokers are required to furnish the form to both the taxpayer and the IRS by January 31 of the following year. For 2025 transactions, you should have received your 1099-DA by January 31, 2026.
What counts as a taxable disposition
Not every crypto transaction is taxable. The IRS treats the following as taxable events:
- Selling crypto for fiat currency (USD, EUR, etc.)
- Trading one crypto for another (BTC for ETH, for example) — this is a disposition of the first asset and an acquisition of the second
- Using crypto to pay for goods or services — treated as a sale at fair market value
- Receiving staking rewards, airdrops, or hard fork tokens — includible in income at fair market value on the date received
The following are generally not taxable dispositions:
- Transferring crypto between your own wallets (self-custody to self-custody)
- Gifting crypto to another individual (though the recipient may have basis limitations)
- Donating crypto to a qualified charity — this is a non-taxable disposition and may generate a charitable deduction
Cost basis tracking is now critical
Before 2025, many taxpayers did not track cost basis carefully because the IRS had no matching information. Now that the IRS receives 1099-DA forms with cost basis data for most brokers, the gap between what you report and what the IRS has will be visible on your return.
If your broker reported your cost basis on the 1099-DA, you should use that number. If you did not receive a 1099-DA (for example, because you traded on a foreign exchange that does not report to the IRS), you are still required to report the transaction — but the basis may be harder to establish. In that case, use the fair market value at the time of acquisition as your cost basis.
Specific identification vs. FIFO vs. weighted average
The IRS allows three methods for identifying which units of a digital asset were sold:
- Specific identification. You identify the exact units sold by their acquisition date and price. This is the most flexible method and often produces the lowest tax liability, but it requires detailed records.
- First-in, first-out (FIFO). The earliest-acquired units are deemed sold first. This is the default method if you do not specify otherwise, and it is simple to apply.
- Weighted average cost. All units of a particular asset are treated as fungible, and the average cost per unit is used. This method is less common for crypto but is permitted.
You must choose a consistent method and apply it across all dispositions of the same asset type. Switching methods mid-year or between years requires IRS approval.
Staking, airdrops, and hard forks
Income from staking, airdrops, and hard forks is generally ordinary income at fair market value on the date you received control of the asset. This income is reported on Schedule 1 (Form 1040) and is separate from any capital gain or loss on the subsequent disposition of the asset.
For example, if you receive 1 ETH as a staking reward when ETH is worth $3,000, you have $3,000 of ordinary income. If you later sell that ETH for $3,500, you have a $500 short-term or long-term capital gain depending on how long you held it.
Penalties for underreporting
The IRS has made it clear that failure to report crypto income can result in:
- Accuracy-related penalties of 20% of the underpayment
- Fraud penalties of 75% of the underpayment if the failure is deemed intentional
- Criminal prosecution in cases of willful evasion
Because the IRS now receives 1099-DA forms, the likelihood of detection is significantly higher than in prior years. If you discover that you have underreported crypto income, consider filing an amended return (Form 1040-X) or using the IRS Voluntary Disclosure Practice to come into compliance.
Reconciling your records with the 1099-DA
Here is the process every crypto taxpayer should follow for their 2026 return:
- Collect all 1099-DA forms from your brokers, exchanges, and custodians.
- Review each form for accuracy — check dates, quantities, proceeds, and cost basis.
- Compare to your own records. If your basis differs from the broker's reported basis, investigate the discrepancy. You can use your own basis if it is more accurate, but you must be able to substantiate it.
- Report all taxable dispositions on Form 8949, checking the appropriate box for whether basis was reported to the IRS.
- Report staking, airdrop, and hard fork income on Schedule 1 as ordinary income.
Bottom line
The 1099-DA form marks a turning point in crypto taxation. The IRS now has transaction-level data for most digital asset activity, making underreporting far riskier than before. Keep meticulous records of every acquisition and disposition, reconcile your basis against what your broker reported, and seek professional help if you find discrepancies or gaps in your reporting.
Disclaimer: This article is general educational information, not tax, legal, or investment advice. Dollar amounts come from the 2026 sources listed at the end of this article and may change. Before you act, talk to a licensed CPA, EA, or tax attorney about your own situation.