Regulation
US Unveils 2025 Crypto Tax Rules, Delays Non-Depository Details
The IRS recently unveiled a detailed tax framework for cryptocurrency transactions, which will radically reshape reporting requirements for digital asset brokers starting next year.
This new regime mandates comprehensive disclosure by 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 on the movements and earnings of customer assets, which now include stablecoins such as 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.
Significantly, the regulations target well-known platforms, including Coinbase Inc. and Kraken, while granting a temporary reprieve to non-custodial cryptocurrency businesses such as decentralized exchanges and unhosted wallet providers, which are set to receive their own regulatory guidance later this year.
Source: Alpha Photo
The IRS cited the need for further analysis of these entities before implementing comprehensive rules. The rules established by the IRS will go into effect starting January 1, 2025, giving crypto taxpayers a transition period to adjust to the new requirements for the 2024 tax season.
Additionally, from 1 January 2026, brokers will be obliged to keep records of the “cost basis” of assets – essentially the original purchase prices. The regulation also extends to real estate transactions paid for with cryptocurrencies, requiring reporting of the fair market value of the digital assets used.
Public commitment and objectives of the IRS
This structured approach to taxing digital assets comes from the 2021 Infrastructure Bill that required the IRS to formalize reporting processes. The proposal generated significant engagement, with 44,000 public comments submitted, indicating strong industry interest and concern.
IRS Commissioner Danny Werfel emphasized that the final regulations are part of a larger initiative aimed at improving compliance among high-income taxpayers and ensuring that digital assets are not exploited to hide taxable income.
The regulations are intended to streamline and facilitate compliance for taxpayers, while enhancing the IRS’s ability to monitor and enforce tax laws in the digital asset space.
Responding to industry concerns about potential government intervention, 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 client information and infrastructure to comply with brokerage reporting standards, leading to their exclusion from these requirements.
The IRS has also attempted to ease the burden on stablecoin users, particularly those who earn no more than $10,000 a year from these assets.
Transactions involving these stablecoins will be reported in aggregate form, simplifying the process for most investors and maintaining rigorous standards for those handling higher volumes of stablecoin transactions.
For NFTs, the IRS has ruled that only taxpayers who earn 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 abuse within this market segment.
Introduction of new reporting forms and Safe Harbor provisions
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 safeguard provision effective January 1, 2025, allowing taxpayers to allocate their unused digital asset base across multiple wallets or accounts, improving the accuracy and efficiency of reporting.
An integral component of this new regulatory framework is the proposed Form 1099-DA, released earlier this year.
This module is designed to systematically track cryptocurrency transactions and will be released 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 were to impact stablecoin issuers.
These changes may prompt a revision of the tax rules to accommodate new legal realities. In the meantime, the IRS remains committed to refining these regulations based on ongoing industry feedback and its assessments to ensure robust tax compliance in the burgeoning digital asset space.