IRS Releases Draft of New Form 1099-DA
In mid-April 2024, the IRS released a draft of the new information return that will be used for reporting digital asset transactions and furnished by brokers. The 2025 Form 1099-DA is expected to be included on federal tax returns when taxpayers answer “yes” to the digital asset question that concerns receiving, selling, exchanging, or disposing of digital assets or financial interest in a digital asset during the relevant tax year. Examples of digital assets include cryptocurrencies, stablecoins, and non-fungible tokens.
According to the form, taxpayers may be required to recognize gain from the disposition of such assets, and reporting is also required when a broker knows (or has reason to know) that a corporation in which a taxpayer owns a digital asset that is also considered stock has a reportable change in control or capital structure.
Digital Asset Information Reporting
The new Form 1099-DA will ask for information about the type and amounts of digital assets transacted in addition to the addresses and Taxpayer Identification Number (TIN) of involved parties. Taxpayers will have to report when the asset was acquired when it was sold or disposed of, and on a cost basis. There is also a question about the “amount of nondeductible loss in a wash sale transaction involving digital assets that are also stock or securities for tax purposes.” Although federal “wash sale rules” typically disallow taxpayers from purchasing substantially similar securities within 30 days of selling and claiming a loss, this does not currently apply to digital assets. This question is included because digital assets are also stock or securities that are subject to wash sale rules (like specific tokenized equities). Taxpayers should check Box 11d on Form 1099-DA if the sale is not recorded on the distributed ledger because digital asset addresses and transaction IDs cannot be provided often due to transactions occurring within internal record-keeping systems.
Although last summer, the IRS released proposed regulations attempting to clear up confusion around some digital asset issues, some argue that the rules as they currently stand are not enough, particularly as they relate to defining who is a “broker.” In addition, the regulations put the onus on brokers to determine and advise taxpayers of information such as nondeductible losses.
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