New Tax Rules for Crypto Brokers

The U.S. Treasury Department has introduced new tax rules for crypto brokers. These rules will apply to transactions starting next year and aim to set tax filing requirements for digital asset brokers.

The rules currently focus on custodial platforms such as Coinbase and Kraken. Non-custodial firms are temporarily excluded but will face regulations later in the year. Brokers must keep records of customers’ tokens starting in 2026.

Starting in 2025, brokers must report sales and exchanges on Form 1099-DA. The Internal Revenue Service (IRS) has issued a draft of this form. The Infrastructure Investment and Jobs Act, approved in 2021, supports these new requirements.

The IRS will not require reports on most stablecoin sales. There is also an annual limit for reporting non-fungible token (NFT) proceeds. This regulation aims to improve compliance for taxpayers and brokers.

Impact on custodial and non-custodial platforms

The IRS stresses the importance of immediate compliance for major custodial platforms. However, it acknowledges that more study is needed for non-custodial services. These platforms will receive their specific regulations later this year.

The crypto tax rules will take effect on January 1, 2025. This allows crypto taxpayers an extra year to prepare their 2024 returns, and brokers also get an additional year to complete their paperwork before reporting.

The Treasury and the IRS finalized these regulations after considering over 44,000 public comments. The final rules are designed to strike a balance between industry challenges and the need to close the tax gap.

IRS Commissioner Danny Werfel stated that these regulations are crucial for high-income tax compliance. They aim to prevent digital assets from being used to hide taxable income. Werfel also stressed the need for adequate funding to support IRS operations.

Specific provisions for brokers

The final regulations apply to brokers handling digital assets. These include:

– Custodial trading platforms

– Hosted wallet providers

– Digital asset kiosks

– Certain payment processors

Brokers must report gross proceeds from transactions starting January 1, 2025. They must report the tax basis for some transactions starting January 1, 2026. For real estate transactions involving digital assets, crypto brokers must report fair market values from January 1, 2026.

Relief measures and regulations

To ease the transition, the IRS offers penalty relief for certain transactions. This allows a gradual implementation of the new reporting rules. The final regulations also allow aggregate reporting for some stablecoin and NFT sales, subject to de minimis thresholds.

The regulations do not currently cover decentralized or non-custodial brokers. The Treasury and the IRS plan to issue separate rules for these brokers in the future.

The new tax rules for cryptocurrency brokers mark a significant step towards regulating the industry. They aim to improve agreement and prevent tax avoidance in the digital asset sector. As the regulations evolve, both custodial and non-custodial platforms will need to adapt to meet these new requirements.