IRS Digital Asset Sale and Exchange Regulations: What to Know for Your 2025 Crypto Tax Filing

The 2025 tax year marks a turning point for cryptocurrency taxation in the United States. Two sets of final IRS regulations — TD 10000 on broker reporting and TD 10021 on sale and exchange transactions — are now fully operative. For the first time, centralized exchanges are issuing Form 1099-DA, and taxpayers must apply wallet-by-wallet cost basis tracking. If you traded, sold, or exchanged digital assets last year, your compliance obligations have fundamentally changed.

Key Takeaways

• Form 1099-DA is live. Centralized exchanges must report gross proceeds from 2025 digital asset sales on the new Form 1099-DA. Cost basis reporting by brokers begins for assets acquired on or after January 1, 2026.
• Wallet-by-wallet basis tracking is now required. Under TD 10021, taxpayers must track cost basis separately for each wallet or account — not across a universal pool. The default method within each wallet is first-in, first-out (FIFO) unless you specifically identify lots.
• Crypto-to-crypto exchanges are taxable. Every swap — BTC to ETH, a token exchange on a DEX, even wrapping or unwrapping in some interpretations — is a disposition that triggers gain or loss recognition. The Tax Cuts and Jobs Act of 2017 limited like-kind exchange treatment under 26 U.S.C. § 1031 to real property, foreclosing the argument for digital assets.
• DeFi users get no 1099-DA but still owe taxes. Congress repealed the DeFi broker reporting rule via the Congressional Review Act in early 2025. The reporting obligation is gone; the tax obligation is not.
• Penalties apply. Accuracy-related penalties under 26 U.S.C. § 6662 (20% of underpayment) apply to underreported digital asset gains, and information return penalties under 26 U.S.C. § 6721 apply to brokers who fail to file accurate 1099-DAs.

What Changed and Why It Matters Now

Both regulations implement Section 80603 of the Infrastructure Investment and Jobs Act (P.L. 117-58), which expanded the broker definition under 26 U.S.C. § 6045 to include persons who effectuate digital asset transfers.

TD 10000 (finalized July 2024) requires centralized platforms — exchanges, custodial wallet providers, and digital asset payment processors — to issue Form 1099-DA reporting gross proceeds. For the 2025 tax year, brokers report proceeds only. Beginning with assets acquired on or after January 1, 2026, brokers must also report cost basis, bringing digital asset reporting in line with the Form 1099-B regime for equities.

TD 10021 (finalized December 2024) addresses how taxpayers determine gains and losses. The most consequential change is the wallet-by-wallet basis allocation rule: taxpayers must track the cost basis of each digital asset unit within the specific wallet or account where it is held. Transferring assets between wallets does not reset basis, but the taxpayer must maintain records showing the basis that transferred with each unit. Taxpayers were required to allocate existing holdings across their wallets by January 1, 2025, with transitional relief available for the initial allocation.

How Should Taxpayers Handle the 2025 Filing?

The practical workflow for the 2025 tax year is straightforward in concept, complex in execution:

1. Gather all Forms 1099-DA from exchanges. These report gross proceeds only — you are responsible for calculating your own cost basis and reporting gains or losses on Form 8949 and Schedule D.
2. Reconcile 1099-DA data against your own records. The IRS will run automated matching. Discrepancies between your reported proceeds and what exchanges report will generate notices — treat this exactly as you would a 1099-B mismatch for stock trades.
3. Apply wallet-by-wallet basis. For each disposition, identify which wallet or account held the sold units and apply either specific identification or FIFO within that wallet. You cannot cherry-pick high-basis lots from a different wallet to offset gains in another.
4. Report all transactions — including DeFi. The Form 1040 digital asset question (“At any time during 2025, did you: (a) receive … (b) sell, exchange, or otherwise dispose of a digital asset …?”) requires truthful disclosure. Answering “no” when you had unreported DeFi activity is a misstatement on a federal tax return.
5. Document everything. Under 26 U.S.C. § 6001, you must maintain records sufficient to establish gross income. For digital assets, this means transaction histories, wallet addresses, timestamps, and basis calculations — ideally through crypto tax software rather than manual spreadsheets.

The DeFi Reporting Gap

The Treasury Department’s attempt to extend broker reporting to DeFi front-ends was nullified when Congress invoked the Congressional Review Act (5 U.S.C. §§ 801–808) in early 2025, prohibiting the agency from issuing any “substantially similar” rule without new legislation. This creates a significant compliance asymmetry: centralized exchange users will have their activity reported to the IRS automatically, while DeFi users — using Uniswap, Aave, or similar protocols — bear the full burden of self-reporting with no third-party verification.

This gap cuts both ways. DeFi users face higher audit risk precisely because the IRS has no automatic matching mechanism — making targeted enforcement actions and blockchain analytics the primary compliance tools. The IRS has invested significantly in on-chain tracing capabilities, and the absence of 1099-DAs does not equal the absence of IRS visibility.

What Remains Unsettled

Several areas lack definitive guidance, creating compliance uncertainty that practitioners should flag for clients:

• Staking rewards: Revenue Ruling 2023-14 holds that staking rewards are gross income upon receipt. The Jarrett v. United States litigation in the Middle District of Tennessee challenged this position. The ultimate resolution affects millions of stakers, and practitioners should monitor this case closely.
• Wrapped tokens and bridging: Whether converting ETH to WETH or bridging assets across Layer 2 networks constitutes a taxable exchange is unaddressed in the regulations. Conservative practitioners treat these as taxable; aggressive positions exist but carry risk.
• NFT classification: Notice 2023-27 raised the question of whether certain NFTs are “collectibles” subject to the 28% maximum capital gains rate under 26 U.S.C. § 1(h)(4). No final guidance has been issued.
• Wash sales: Digital assets currently fall outside the wash sale rule under 26 U.S.C. § 1091 (which applies to “stock or securities”). Legislative proposals to close this gap have been introduced but not enacted. This remains a legitimate tax planning tool — for now.

Don’t Forget State Obligations

Federal compliance is only part of the picture. Most states with an income tax conform to federal treatment of digital assets, meaning gains reported on your federal return flow through to state returns. However, conformity is not universal — some states have their own digital asset provisions or lag in adopting federal changes. Taxpayers in high-tax states (California, New York, New Jersey) should verify their state’s treatment, particularly for staking income and DeFi yields where federal guidance is itself unsettled.

Practical Implications

For individual taxpayers: This filing season is the new normal. Treat crypto tax compliance with the same rigor you would a brokerage account. Use crypto tax software that supports wallet-by-wallet basis tracking. If you failed to allocate basis across wallets by January 1, 2025, consult a tax professional about remediation options — FIFO default may have locked in unfavorable gain recognition.

For exchanges and brokers: Ensure 1099-DA filing obligations for 2025 are met. Begin building systems for basis reporting on assets acquired from January 1, 2026 forward. Watch for IRS guidance on edge cases like hard forks and airdrops received in custodial accounts.

For tax professionals: Expect client questions about 1099-DA discrepancies, basis allocation disputes, and DeFi self-reporting. The reconciliation burden is real and billable — scope engagements accordingly.

Conclusion

The IRS digital asset regulations under TD 10000 and TD 10021 represent the most significant structural change to cryptocurrency tax compliance since Notice 2014-21 first declared virtual currency to be property. The 2025 tax year is the first full test of this regime — Form 1099-DA reporting is active, wallet-by-wallet basis rules are mandatory, and the DeFi reporting gap creates a two-track compliance landscape. Whether you are a retail trader, an exchange operator, or a tax professional, treating this filing season as a reset point for crypto tax compliance is the prudent approach.

This article is for informational and educational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. Laws and regulations in the cryptocurrency space change rapidly — consult a qualified attorney for advice specific to your situation and jurisdiction. Seth Goettelman is licensed to practice law in Wisconsin and Florida.