US Reveals 2025 Crypto Tax Rules, Delays Non-Custodian Details

The IRS has recently unveiled a detailed tax framework for cryptocurrency transactions, which will fundamentally reshape filing requirements for digital asset brokers starting next year.

This new regime mandates comprehensive disclosures from various entities such as trading platforms, hosted wallet services, and digital asset kiosks.

Impact on Major Platforms and Temporary Measures

These entities are required to report on the movements and gains 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 concerning the classification of tokens as either securities or commodities.

Significantly, the regulations target well-known platforms including Coinbase Inc. and Kraken, while granting a temporary reprieve to non-custodial crypto businesses like decentralized exchanges and unhosted wallet providers, which are set to receive their own regulatory guidelines later this year.

The IRS has cited the need for further analysis of these entities before implementing comprehensive rules. The rules set forth by the IRS will take effect starting January 1, 2025, providing crypto taxpayers with a transition period to adapt to the new requirements for the 2024 tax season.

Additionally, from January 1, 2026, brokers will be obligated to maintain records of the “cost basis” of assets, essentially the original purchase prices. The regulations also extend to real estate transactions paid for with cryptocurrencies, requiring the reporting of the fair market value of the digital assets used.

Public Engagement and IRS Objectives

This structured approach to digital asset taxation stems from the 2021 infrastructure bill which mandated the IRS to formalize reporting processes. The proposal has generated considerable engagement, with 44,000 public comments submitted, indicating strong industry interest and concern.

IRS Commissioner Danny Werfel highlighted that the finalized regulations are part of a broader initiative aimed at improving compliance among high-income taxpayers and ensuring that digital assets are not exploited to conceal taxable income.

The regulations are intended to simplify and facilitate compliance for taxpayers, while also enhancing the IRS’s ability to monitor and enforce tax laws in the digital asset space.

Addressing industry concerns about potential governmental overreach, the IRS clarified that certain entities that assist investors, such as miners, online forums, and software developers, would not be classified as brokers.

These groups often lack the necessary customer information and infrastructure to comply with brokerage reporting standards, leading to their exclusion from these requirements.

The IRS has also attempted to alleviate the burden on stablecoin users, specifically those who do not accrue more than $10,000 from these assets annually.

Transactions involving these stablecoins will be reported in an aggregated fashion, streamlining the process for most investors while maintaining rigorous standards for those with higher volumes of stablecoin transactions.

Regarding NFTs, the IRS has established that only taxpayers earning over $600 from NFT sales annually are required to report their aggregated proceeds. This information will be crucial for the IRS to monitor compliance and identify potential abuses within this segment of the market.

Introduction of New Reporting Forms and Safe Harbor Provision

To clarify the scope of these new regulations, the IRS defined digital assets and related activities covered under the new rules.

They have also introduced a safe harbor provision effective from January 1, 2025, which allows taxpayers to allocate unused basis of digital assets across various wallets or accounts, enhancing the accuracy and efficiency of reporting.

An integral component of this new regulatory framework is the proposed 1099-DA form, which was released earlier this year.

This form is designed to track cryptocurrency transactions systematically and will be issued to millions of crypto investors by their brokers, facilitating a more straightforward and compliant reporting process.

As the landscape of digital asset regulation continues to evolve, the possibility of amendments remains, especially if upcoming legislative changes impact stablecoin issuers.

These changes could prompt a revision of the tax rules to accommodate new legal realities. Meanwhile, 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 field of digital assets.