Breaking News: If you traded cryptocurrency on centralized exchanges during 2025, expect a new tax form in your inbox by mid-February. The IRS is rolling out Form 1099-DA, and being prepared is your best defense against penalties and notices.
Understanding the 1099-DA: Your New Crypto Tax Reality
What exactly is Form 1099-DA? Think of it as the cryptocurrency equivalent of the stock broker’s 1099-B form. Just as traditional brokerages report your stock sales, gains, and losses to the IRS, centralized crypto exchanges now do the same for your digital asset transactions.
This requirement stems from the 2021 Infrastructure Investment and Jobs Act. Congress determined that cryptocurrency transactions deserved the same reporting framework as traditional securities. The result? A comprehensive reporting system designed to close the tax gap in crypto transactions.
Who Issues These Forms?
Centralized exchanges only: Platforms like Coinbase, Kraken, Gemini, and other U.S.-based exchanges must issue 1099-DA forms for qualifying transactions. Decentralized exchanges (DeFi), self-custody wallets, and peer-to-peer transactions remain outside this reporting requirement.
What Information Gets Reported to the IRS?
For the 2025 Tax Year (Current Filing Season)
- Gross proceeds only: Exchanges report the total dollar amount from your crypto-to-USD and crypto-to-crypto sales on a transaction-by-transaction basis
- Both federal and state reporting: The IRS and participating state tax authorities receive this information
- No cost basis yet: For 2025 transactions, exchanges aren’t required to report cost basis to tax authorities
Important Clarification: The 1099-DA is prepared by your exchange, not by you. You receive a copy of what was sent to the IRS—you don’t fill out or submit this form yourself.
What You’ll See on Your 1099-DA
Most exchanges have adopted a user-friendly approach by consolidating your transactions rather than sending separate forms for each trade. Your form will typically include:
- Aggregated transaction data: Multiple trades condensed into summary entries
- Sale proceeds: The total amount received from each transaction
- Cost basis information: Included when the exchange has access to this data
- “Unknown” basis designations: Common for assets transferred from other platforms
The “Unknown Cost Basis” Situation Explained
Here’s a scenario that catches many traders off guard: You purchase Bitcoin on Exchange A, transfer it to Exchange B, and then sell it. Exchange B has zero knowledge of your original purchase price because that transaction happened elsewhere. Result? Your 1099-DA shows “unknown” for the cost basis.
The Good News: IRS regulations allow you to report the correct cost basis on Form 8949 using your own transaction records and crypto tax software. You don’t need to chase down the exchange for corrections or amendments to your 1099-DA.
Under IRS Notice 2025-7, taxpayers can rely on their own books, records, and crypto tax software for cost basis reporting in the 2025 tax year. This flexibility provides a crucial bridge while exchanges build out more comprehensive tracking systems.
When Your 1099-DA Shows Incorrect Cost Basis
Don’t Panic: Finding errors on your 1099-DA isn’t a disaster, especially for the 2025 tax year. Here’s why you can breathe easier:
- Limited IRS reporting for 2025: Exchanges aren’t transmitting cost basis data to the IRS yet (that starts with 2026 transactions)
- IRS explicitly permits self-reporting: Notice 2025-7 authorizes taxpayers to use their own records and software for accurate basis calculations
- Form 8949 is your solution: Report the correct cost basis on this form using your documentation
The bottom line: You’re not required to obtain corrections from your exchange. Focus on accurate reporting using your own comprehensive records.
Transactions NOT Covered by 1099-DA Forms
Critical Tax Planning Alert: Just because something doesn’t appear on a 1099-DA doesn’t mean it’s not taxable. You’re still responsible for reporting these transactions:
- Stablecoin transactions under $10,000: Small stablecoin sales may not trigger form generation
- NFT sales below $600: Smaller NFT transactions fall below reporting thresholds
- Wrapping operations: Converting ETH to WETH and similar transformations
- Crypto lending activities: Interest earned and loan transactions
- Staking rewards: Reported on 1099-MISC if earnings exceed $600, but smaller amounts still require self-reporting
- All DeFi protocol interactions: Decentralized exchanges, liquidity pools, yield farming, and other DeFi activities
Essential Tool: Comprehensive crypto tax software becomes indispensable for accurately capturing these non-1099-DA transactions. Manual tracking of complex DeFi activities is impractical for most traders.
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Our crypto tax specialists handle everything from 1099-DA reconciliation to DeFi transaction reporting. Let’s ensure your return is accurate and optimized.
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How the IRS Will Use 1099-DA Data for Enforcement
Understanding the IRS matching process helps you avoid automated notices and potential audits. Here’s the system workflow:
- Data transmission: Exchanges send your 1099-DA information directly to IRS systems
- Automated matching: When you file your return, IRS computers scan for corresponding proceeds reported on your Form 8949
- Discrepancy detection: Significant differences or missing amounts trigger automated correspondence
- Notice generation: You receive an IRS letter requesting explanation or additional tax payment
Prevention Strategy: Ensure your Form 8949 reporting aligns with 1099-DA data, even if you’re correcting cost basis. Use adjustment codes and explanations to document legitimate differences between exchange reporting and your accurate calculations.
Proper Reporting: Where Everything Goes on Your Tax Return
For 1099-DA Reported Transactions
All transactions appearing on your 1099-DA forms must be reported on Form 8949 with specific checkbox designations:
- Short-term transactions (held one year or less): Part I, Box (H)
- Long-term transactions (held over one year): Part II, Box (K)
For Non-1099-DA Transactions (DeFi, etc.)
DeFi activities and other transactions not captured on 1099-DA forms require different reporting:
- Short-term transactions: Part I, Box (I)
- Long-term transactions: Part II, Box (L)
Why the distinction matters: Using incorrect boxes can trigger IRS matching failures and notices. The specific box selection tells the IRS whether they should expect corresponding 1099-DA data in their systems.
The #1 Confusion Point: Why Your Software Won’t Match Your 1099-DA
Expect Discrepancies: This will be the most common headache in the 2026 filing season. The numbers from your crypto tax software will likely differ from your 1099-DA totals.
Why Differences Occur
- Methodology variations: Exchanges and software platforms may use different cost basis calculation methods
- Transfer timing: Assets moved between platforms create tracking gaps
- Transaction categorization: Software might classify certain activities differently than exchanges
- Fee treatment: Differences in how trading fees are allocated
- Complete transaction history: Your software captures your full crypto activity across all platforms; each exchange only knows about its own transactions
The Reconciliation Requirement: You’ll need to make specific adjustments on Form 8949 to align your comprehensive software-generated reports with individual 1099-DA forms. This reconciliation process is essential to avoid IRS matching notices.
For a detailed walkthrough of resolving these mismatches, including step-by-step reconciliation strategies and real-world examples, we’ve prepared a comprehensive guide that addresses common scenarios and solutions.
Looking Ahead: Cost Basis Reporting Changes
Mark Your Calendar: Starting with the 2026 tax year (filed in 2027), exchanges will begin reporting cost basis information to the IRS alongside gross proceeds. This represents a significant increase in IRS matching capabilities and makes accurate record-keeping even more critical.
This escalation in reporting requirements means the 2025 tax year offers a valuable opportunity to establish strong crypto tax practices and resolve any historical basis issues before enhanced IRS matching begins.
Need Expert Guidance for 1099-DA Compliance?
Don’t navigate these complex reporting requirements alone. Our team specializes in:
- 1099-DA reconciliation and Form 8949 preparation
- DeFi transaction reporting and classification
- Cost basis reconstruction for transferred assets
- IRS notice response and resolution
- Tax optimization strategies for active traders
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Key Takeaways for 2026 Filing Season
- Form 1099-DA is mandatory for centralized exchange transactions in 2025
- Gross proceeds are reported to the IRS; cost basis reporting to IRS begins in 2026
- “Unknown” cost basis on your form is normal and fixable on Form 8949
- You can rely on your own records and software for accurate basis reporting
- DeFi and many other transactions still require self-reporting despite no 1099-DA
- Your software totals won’t match individual 1099-DAs—reconciliation is necessary
- Proper Form 8949 checkbox selection prevents IRS matching failures
- Professional guidance can save significant time, stress, and potential penalties
