What Crypto Investors Should Know About The IRS Tax Regime For 2025

Following over 44,000 comments to the IRS on the proposed rules around 1099 reporting for crypto exchanges that have now been (partially) codified into comprehensive tax policy, effective for transactions beginning January 1, 2025, crypto investors and traders might be left with questions about what these rules are. Especially considering that the content, enforcement, and timing of the multiple crypto tax changes has been hotly debated for several years at this point, it is worth taking a look at what is in the final (for now) version of these changes.

As opposed to previous years where the IRS was the primary regulator for cryptoassets, along with the SEC, 2024 has seen a proverbial rush of action taken by both individual states and Congressional leaders. With states like Wyoming moving forward decisively with efforts to issue and manage a state-based stable token, TradFi firms making large entrances into the space, and the SEC seemingly ready to approve ether ETFs, the regulatory and tax environment is slowly becoming clearer and easier to navigate. With an estimated 15 million taxpayers affected by these new rules, and with approximately 5,000 firms needing to comply, the IRS and tax policy is still a decisive part of the crypto policy debate.

Let’s take a look at a few key items that have now been codified and are set to take effect in the near term.

Taxpayers Have Until 2025 Or 2026

Even though the legislation that set the ground work for the IRS to establish and enforce more comprehensive rules for regulating crypto was included in the 2021 infrastructure bill, the strong pushback and time necessary to craft rule changes means that said changes will take effect in 2025 or 2026 depending on the specific subset of crypto being examined. The final rule for 1099 reporting for centralized exchanges will apply to transactions beginning January 1, 2025 although many of the most established players such as Coinbase have already begun voluntary compliance.

Even for centralized brokers there is an additional bit of nuance to be examined, with the much protested cost basis reporting requirements set to take effect for transactions occurring 2026. Decentralized exchanges and unhosted wallets providers, themselves a major source of questions and comments since this rule was announced, will receive a specific rule applicable to those operations later this year. Real estate transactions involving cryptoassets will also be subject to the new reporting rules for transactions beginning January 1, 2026.

Stablecoins Are Mostly Excluded

Stablecoins, a subset of crypto that is purpose built and deployed to serve as a medium of exchange and of doing business, continue to play an increasingly important role in the institutional adoption of crypto, retail utilization as a currency alternative, and the DeFi sector. These factors, and more, were apparently taken into account by the IRS during this rule making process. Based on the interpretation of the ruling a retail crypto investor that earns less than $10,000 from stablecoins is exempt from reporting. How the earnings will be measured and determined exactly remains to be seen, but sophisticated and high volume stablecoin traders and investors will be subject to the full reporting requirements.

The IRS also noted that if Congress passes legislation that regulates stablecoin, the tax treatment and reporting guidelines are subject to revision in the future.

NFTs Remain Complex

The IRS also noted the volume and complexity of legal arguments faced by the Service in determining the appropriate tax treatment of NFTs. At this time the reporting requirements only apply to crypto investors that generate over $600 in earnings from NFTs, and even this reporting is only required on an aggregate basis versus an individual transactional basis. Notably the IRS also indicated that the reporting rules for NFTs might change in the future if it is found that the aggregate reporting approach leads to distortions or otherwise hampers tax collection and enforcement efforts.

In other words, for both stablecoins and NFTs the IRS has new guidance that has been published, but publicly acknowledges that this updated guidance might very well change over time due to factors outside of the IRS specifically.

Taxes and tax reporting remain an ongoing issue for crypto investors and financial professionals seeking to offer advice and guidance to clients and colleagues on this complicated and fast-moving space. Recent announcements by the IRS finalizing some (but not all) of tax reporting and compliance changes reconfirms that this part of crypto will remain dynamic and fluid for the foreseeable future.

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