Crypto Tax Developments

There are several new developments and changes regarding crypto tax reporting—here is what you can expect as a Fidelity Digital Assets® client. This article is not intended to review the basics of how crypto could be taxed, which can be found here.

You should always consult your own tax, legal, and accounting advisors before engaging in any transaction.

What Is Changing This Year?

As of January 1, 2025, all crypto sale transactions must be reported to the IRS. As a result, Fidelity Digital Assets® is required to report all sales transactions made on our platform using the newly mandated Form 1099-DA. Clients should expect to receive Form 1099-DA if they had any sales on our platform during 2025.

Excluded registrations for 2025 are S-Corp, C-Corp, IRAs, 501c3, and other non-taxable registrations. 

What If I Do Not Receive a 1099-DA form?

You will only receive a form if you had any sales transactions on our platform. The only portion of transfers that is 1099-DA reportable is if coin is sold to cover a fee. If no coin was sold during your transfer, you will not receive Form 1099-DA. 

If you did not have any sales—only purchases, transfers in or out, or simply held tokens throughout the year—you should not expect to receive a form for 2025. 

What Is Reported to the IRS? 

Only the date of sale, quantity, and gross proceeds will be reported for 2025. The 2025 Form 1099-DA will not include acquisition dates or cost basis of assets sold. This is because digital assets are not considered “Covered” by IRS regulations unless they are purchased on or after January 1, 2026. Because of this, the purchase information will not be reported in 2025. 

However, starting January 1, 2026, the cost basis for assets purchased on exchanges will be considered “Covered.” That means the cost basis will be reported on Form 1099-DA if sold on the same platform that it was bought on. Because transfer regulations are not written yet, a transfer out will cause that transferred asset to be non-covered as cost basis does not transfer on the blockchain. Non-covered assets will require voluntary reporting of basis information to the IRS. 

What About Wash Sales? 

Wash sales are not something that customers need to take into account with their transactions on digital assets today. Future legislation may change the way customers need to treat wash sales for digital assets. 

Losses from wash sales of tokens that are considered securities or tokenized securities must be tracked and reported.¹

What Is “Account-by-Account” Cost Basis Tracking?

The IRS has recognized that, thus far, some investors were looking at basis universally for their digital assets instead of on an “account-by-account” or “wallet-by-wallet” basis. The IRS has now provided clear guidance that this is not permitted and has given asset holders until December 31, 2025 (extended from December 31, 2024) to determine what lots are with which wallets.²

The IRS, however, did not direct brokers to update existing records if clients had previously used the universal wallet approach. At this time, Fidelity Digital Assets does not have plans to allow clients to adjust tax lots to reflect what the client feels is the right lot for the coin on our platform, but this may change in the future. The default method for Fidelity Digital Assets (per IRS guidelines) for allocating cost basis (when known), is first-in-first-out (FIFO). 

An Example of Account-by-Account Tracking

As an example, let us say someone made the following purchases and sales within the year:

• Purchased 1 BTC for $100,000 on exchange A
• Later purchased another 1 BTC for $90,000 on exchange B
• Later sold 1 BTC for $80,000 on exchange B

Let us also assume the investor is using the FIFO cost basis method. 

Previously, investors may have assumed or treated all of their assets as comingled or “one wallet,” also sometimes referred to as “pooled.” Under this assumption, the capital gains tax would have been calculated as follows: 

• Capital Gain/Loss = $80,000 (gross proceeds or sales) - $100,000 (cost basis of earliest coin acquired under FIFO) = ($20,000) Capital Loss

Under the clarified guidelines from the IRS, investors must calculate cost basis separately for every wallet or account. The calculation would therefore be: 

• Capital Gain/Loss = $80,000 (gross proceeds or sales) - $90,000 (cost basis of earliest coin acquired on the same exchange) = ($10,000) Capital Loss