Regulation
US reveals 2025 crypto tax rules, delays non-custodial details
The IRS recently unveiled a detailed tax framework for cryptocurrency transactions, which will fundamentally reshape reporting requirements for digital asset brokers starting next year.
This new regime requires comprehensive disclosures from various entities such as trading platforms, hosted wallet services and digital asset kiosks.
Impact on main platforms and temporary measures
These entities are required to report movements and earnings of customer assets, which now encompass stablecoins like those issued by Tether and Circle Internet Financial, as well as high-value non-fungible tokens (NFTs), albeit under specific conditions.
This development leaves unresolved the broader debate regarding the classification of tokens as securities or commodities.
Importantly, the regulation targets well-known platforms including Coinbase Inc. and Kraken, while providing a temporary reprieve to non-custodial crypto businesses such as decentralized exchanges and unhosted wallet providers, which are expected to receive their own regulatory guidance later this year.
Source: Alpha Photo
The IRS has cited the need for further analysis of these entities before implementing comprehensive rules. The rules established by the IRS will take effect on January 1, 2025, providing crypto taxpayers with a transition period to adjust to the new requirements of the 2024 tax season.
Additionally, from January 1, 2026, brokers will be required to keep records of the “cost basis” of assets, essentially the initial purchase prices. The regulations also extend to real estate transactions paid for with cryptocurrencies, requiring reporting of the fair market value of the digital assets used.
Public Engagement and IRS Goals
This structured approach to digital asset taxation stems from the 2021 Infrastructure Bill that mandated the IRS to formalize reporting processes. The proposal garnered significant engagement, with 44,000 public comments submitted, indicating strong industry interest and concern.
IRS Commissioner Danny Werfel emphasized that the finalized regulations are part of a broader initiative to improve compliance for high-income taxpayers and ensure that digital assets are not exploited to hide taxable income .
The regulations aim to simplify and facilitate compliance for taxpayers, while improving the IRS’s ability to monitor and enforce tax laws in the digital asset area.
To address industry concerns about potential government overreach, the IRS clarified that certain entities that help investors, such as miners, online forums and software developers, would not be classified as broker-dealers.
These groups often lack the customer information and infrastructure necessary to comply with broker-dealer reporting standards, excluding them from these requirements.
The IRS has also tried to ease the burden on stablecoin users, particularly those who accumulate no more than $10,000 in the assets per year.
Transactions involving these stablecoins will be reported in aggregate, simplifying the process for most investors while maintaining rigorous standards for those with higher volumes of stablecoin transactions.
When it comes to NFTs, the IRS has established that only taxpayers earning more than $600 per year from NFT sales are required to report their aggregate income. This information will be crucial for the IRS to monitor compliance and identify potential abuses within this market segment.
Introduction of new reporting forms and a safe harbor provision
To clarify the scope of these new regulations, the IRS has defined the digital assets and related activities covered by the new rules.
They also introduced a safe harbor provision effective January 1, 2025, which allows taxpayers to distribute the unused base of digital assets across different wallets or accounts, thereby improving the accuracy and efficiency of reporting.
A key element of this new regulatory framework is the proposed Form 1099-DA, which was released earlier this year.
This form is designed to systematically track cryptocurrency transactions and will be issued to millions of cryptocurrency investors by their brokers, facilitating a simpler and more compliant reporting process.
As the digital asset regulatory landscape continues to evolvethe possibility of amendments remains, especially if upcoming legislative changes impact stablecoin issuers.
These changes may result in revised tax rules to reflect new legal realities. In the meantime, the IRS remains committed to refining these regulations based on ongoing industry feedback and its own assessments to ensure robust tax compliance in the burgeoning digital asset space.