Crypto investors rejoicing over the latest rally are about to run into some tax reporting hurdles in the new year. That’s because new accounting rules around cryptocurrency are set to take effect on Jan. 1 — a move that could upend the way investors report their transactions and holdings of bitcoin and other digital assets. “I would say that this is the most significant crypto tax change or guidance since 2014, when the IRS originally defined crypto as property rather than currency,” said Andrew Gordon, a tax attorney and certified public accountant at Gordon Law Group . That’s because crypto brokers will need to report investors’ proceeds from 2025 sales digital assets under a new tax form known as Form 1099-DA. There are also changes coming to cost basis calculations – which is key for investors as cost basis represents their original investment in the asset. If you haven’t been tracking your crypto cost basis, you may need to deem it as zero, which means you’re subject to steep capital gains taxes on appreciation when you decide to sell. This is especially key as bitcoin has surged to $100,000 , meaning that the earliest holders with the lowest basis could be facing harsh taxes on sale. BTC.CM= YTD mountain Bitcoin in 2024 Though the new rule brings some reporting uniformity for the brokers and exchanges, it makes the situation complicated for individual investors who tend to keep their crypto holdings in different wallets. Investors have been using the “universal” method to track their crypto cost basis – which treats the assets as if they’re held in one account, even if they’re spread in different wallets or exchanges. Under this method, they have also been assigning – or allocating – the basis at sale. Since this universal method will no longer be in effect starting Jan. 1, investors will need to make a “reasonable allocation” of their cost basis in each wallet – and they need to track this cost basis, as well. “It’s typical to transfer crypto from one place to another, and cost basis will be an issue with this new form,” said Gordon. “Now, each exchange will report on a per-wallet basis with these new 1099-DAs.” A countdown to new methods As the new year approaches, investors can take a few steps to prepare for this new accounting regime. For starters, they’ll need to work with an accountant or use planning software to go through their trades and identify gains and losses. Those with multiple wallets will need to do it for each one. “You’ll want to pull all of your transactions from all of these wallets, which is a pain – and then contact your CPA and let them know that this information is coming,” said Tyrone Ross, CEO of Turnqey Labs, a platform that provides data aggregation for reporting on crypto assets. Investors will also need to work with their accountant to determine the “reasonable allocation” of their cost basis, based on different methods: global or specific unit allocation. There are planning implications for each method, Gordon said. Global allocation involves allocating the basis to all remaining crypto assets using a specific rule, Gordon said. Specific unit allocation involves assigning basis for assets held in a single account. With specific unit allocation, investors can decide to keep their low cost basis crypto in a separate wallet and plan to pass it on to heirs – the benefit is that inherited property gets a step-up in basis to market value, which minimizes capital gains taxes if the recipient sells. At the same time, higher basis crypto assets that are used for trading might be held in a different wallet, Gordon said. The global allocation method tends to be simpler to implement. Investors can use it to combine their holdings into a single wallet by year-end and then keep using this method going forward, he added. For those who can’t get their crypto reconciled in time, the bare minimum would be to at least work with their tax professional to prepare a document that identifies their preferred allocation method, Gordon said. “The best thing you can do now is get your ducks in a row and start preparing for the tax reporting that’s coming,” said Ross.
