What is the 1099-DA form and which taxpayers need to pay attention to it? Accountant Wendy Liu, who practices in Diamond Bar, explained that starting from the 2025 tax year, the Internal Revenue Service (IRS) will require digital asset brokers to send 1099-DA forms to investors involved in certain digital asset transactions, such as cryptocurrency and non-fungible token (NFT) trades.
The introduction of the 1099-DA form by the IRS aims to meet the increasing demand for accurate reporting of cryptocurrency transactions. With the popularity of cryptocurrency and NFT transactions on the rise, the IRS needs investors to accurately report their cryptocurrency-related transactions.
Currently, platforms like Coinbase and PayPal issue 1099-K forms to individuals who receive payments in cryptocurrency for goods or services, reporting the total cryptocurrency payments received within the tax year. Taxpayers must report this income on their 1040 forms.
However, starting from the 2025 tax year, asset trading platforms, digital asset payment processors, and certain digital asset custodial wallet providers will be required to issue 1099-DA forms to investors for digital asset sales or exchanges occurring on or after January 1, 2025. This form will report total proceeds as well as, in certain cases, gain, loss, and cost basis information.
Real estate reporting entities such as title companies, closing attorneys, mortgage lenders, and real estate agents are also required to report the fair market value of “digital assets” used as consideration in real estate transactions completed on or after January 1, 2025, by real estate buyers, as well as report the fair market value of digital assets paid to real estate sellers on Form 1099-S.
The proposed regulations set forth rules for calculating gains (or losses) in digital asset transactions, determining cost basis, and backup withholding tax, providing clear information on digital assets for taxpayers, tax professionals, and others.
Liu emphasized that the proposed regulations are intended to enhance compliance and ensure that digital assets are not used to conceal taxable income. In the past, the IRS relied on taxpayers to accurately report their cryptocurrency transactions without verification from any third party, leading to inconsistent reporting of digital asset income and complex, time-consuming, error-prone cost basis calculations, thus resulting in incomplete tax information.
To address these issues, the IRS will require digital asset brokers and individuals considered to be digital asset exchange brokers to issue 1099-DA forms, allowing for more accurate and comprehensive information on cryptocurrency transactions to improve tax compliance and reduce tax evasion risk.
Liu reminded taxpayers that the final version of the 1099-DA form has not been confirmed yet, but the form will impact any individual or entity engaged in certain transactions involving virtual assets within the United States. This includes individuals who buy, sell, or trade cryptocurrencies, businesses that accept cryptocurrency as payment, or stakers who receive cryptocurrency rewards for locking assets, as well as miners who earn cryptocurrency through executing computer algorithms, who will all receive the 1099-DA form.
Although the 1099-DA form will not be rolled out until 2025, taxpayers are still required to report their cryptocurrency investments and any taxable income for the current tax year and submit Form 1040’s Schedule D along with Form 8949. Liu explained that if taxpayers realize any capital gains or losses from cryptocurrency trades, they should submit Form 8949 along with Form 1040; however, if the taxpayer’s asset sale cost basis on Form 1099-B or future 1099-DA has been reported to the IRS and does not need correction or adjustment, Form 8949 does not need to be filed.
Liu believes that the 1099-DA form simplifies the process of reporting cryptocurrency taxes, preventing errors and omissions when investors file their taxes. Currently, there is no specific threshold for triggering the issuance of a 1099-DA form for NFTs or cryptocurrency values, and digital asset brokers must issue the form for any transaction that results in profit or loss, regardless of the value of the asset involved.
Cryptocurrency holdings are generally considered taxable assets, and if taxpayers go bankrupt due to cryptocurrency investments, they can report capital losses on their tax returns; donating cryptocurrency to eligible charities may qualify for charitable deductions. However, Liu cautioned that the specific tax implications of cryptocurrency bankruptcy may vary depending on individual circumstances.