By Mark Sipos, Director, LFG Tax
For years, cryptocurrency investors have faced a familiar problem at tax time: keeping track of what they bought, what they sold and what it cost them. Beginning in 2026, the IRS is taking a significant step toward making digital-asset transactions more visible through the tax reporting system.
The change does not mean that Bitcoin or other digital assets are suddenly subject to a new type of income tax. Instead, the IRS is implementing new reporting requirements for brokers and introducing Form 1099-DA, Digital Asset Proceeds From Broker Transactions. For investors, this means better reporting—but also a greater need to maintain accurate records.
What Is Form 1099-DA?
Form 1099-DA is the digital-asset equivalent of the information reporting investors are accustomed to receiving for many traditional investments.
For transactions beginning in 2025, brokers generally began reporting gross proceeds from reportable digital-asset transactions. Beginning with transactions in 2026, brokers generally must also report cost basis for digital assets that qualify as covered securities. Basis reporting for noncovered digital assets is generally voluntary.
This is an important development because cost basis is what allows taxpayers to determine their taxable gain or loss.
For example, suppose you purchased Bitcoin for $30,000 and later sold it for $75,000. Assuming the Bitcoin was held as a capital asset, the $45,000 difference would generally represent a capital gain, subject to applicable adjustments and tax rules.
The new reporting system is intended to make transactions easier for taxpayers and the IRS to reconcile.
Don’t Assume the 1099-DA Tells the Whole Story
Although the new reporting requirements should make tax reporting easier, investors should not assume that their 1099-DA will contain everything necessary to prepare their tax return.
The IRS specifically notes that taxpayers remain responsible for reporting their digital-asset income, gains and losses whether or not they receive a Form 1099-DA. This can be particularly important for investors who use multiple exchanges, wallets or foreign platforms.
For example, an investor might have purchased Bitcoin through one exchange, transferred it to a personal wallet, and later sold it through another platform. The broker handling the sale may not have all of the information necessary to establish the investor’s original basis.
In other words, the IRS’s new reporting system does not eliminate the investor’s recordkeeping responsibility.
Which Bitcoin Did You Sell?
Another important issue for investors who purchased digital assets at different prices is determining which units were sold. Consider an investor who purchased Bitcoin several times:
- $10,000 worth several years ago
- $20,000 worth two years later
- $30,000 worth more recently
If the investor sells only part of the holdings, the tax consequences can vary substantially depending upon which units are treated as having been sold.
The 2026 rules provide specific requirements for identifying digital assets sold. Generally, when an investor has acquired digital assets on different dates or at different prices, the broker can use the taxpayer’s adequate and timely identification of the assets to be sold. If no identification is made, the rules generally require the earliest units to be treated as sold first. That makes good recordkeeping and advanced planning particularly important.
What About Bitcoin-to-Bitcoin or Crypto-to-Crypto Transactions?
Another common misconception is that taxes apply only when cryptocurrency is converted into U.S. dollars. But that isn’t necessarily the case.
Exchanging one digital asset for another can create a taxable gain or loss. Likewise, using digital assets to purchase goods or services can have tax consequences.
The IRS continues to treat many digital assets as property for federal income-tax purposes. Consequently, taxpayers generally need to determine their adjusted basis and the value of the property or assets received when a taxable disposition occurs.
What Should Investors Do Now?
Investors who own Bitcoin, Ethereum, stablecoins, NFTs or other digital assets should consider taking several steps before year-end:
1. Download your transaction history.
Obtain records from every exchange, brokerage account and digital wallet you have used.
2. Establish your cost basis.
Make sure you know when each asset was acquired, what you paid, and what transaction costs were incurred.
3. Reconcile transfers.
Moving cryptocurrency between wallets is not necessarily a taxable sale, but incomplete records can make it difficult to distinguish transfers from taxable dispositions.
4. Review gains and losses before December 31.
Digital assets should be considered as part of your overall investment tax strategy, including potential capital-gain and tax-loss-harvesting opportunities.
5. Don’t wait for the 1099-DA.
The form may help confirm your records, but it should not be the starting point for reconstructing your entire digital-asset history.
A New Era of Digital-Asset Tax Reporting
The IRS’s new reporting requirements represent an important change in the way digital-asset transactions are documented. The goal is greater consistency and transparency, but investors should expect the transition to take some time.
For investors, the message is simple: cryptocurrency may be digital, but the tax records need to be very real.
As 2026 comes to a close, reviewing your digital-asset transactions alongside your broader investment and tax plan can help reduce surprises at tax time. A year-end review may also uncover opportunities to manage capital gains and losses, establish accurate basis information, and prepare for the Form 1099-DA reporting you may receive.
If you own digital assets, consider discussing your transactions with your tax and financial professionals before year-end—not after the tax return is due.
