Your broker's Form 1099-DA is not going to know what you paid for your Bitcoin — and starting with 2026 transactions, the IRS is going to expect you to know anyway. For the 2025 tax year, brokers issuing Form 1099-DA report gross proceeds only. No cost basis. That changes for digital assets acquired on or after January 1, 2026, when brokers start reporting basis alongside proceeds — but only for assets that never left their platform. If you've ever moved crypto between wallets or exchanges (and almost everyone has), you're carrying a basis-reconciliation problem that broker reporting alone won't solve.
Table of Contents
- Key Takeaways
- What 1099-DA Actually Reports, and When
- Why Broker-Reported Basis Won't Match Your Records
- Worked Example: The Transferred-Wallet Basis Gap
- The One-Time Safe Harbor You May Have Already Needed
- The Catch
- How to Reconcile Your Own Records Now
- Putting It All Together
- Frequently Asked Questions
Key Takeaways
- 2025 Forms 1099-DA report proceeds only — no basis. Brokers had transitional penalty relief for 2025 transactions under Notice 2024-56.
- Cost basis reporting starts with assets acquired on or after January 1, 2026. Even then, it only applies to "covered securities" bought and held at the same broker the whole time. First basis-inclusive forms arrive in early 2027.
- Anything transferred between wallets or exchanges is "noncovered." Your broker has no obligation to report — or even correctly guess — the basis on assets that moved in from somewhere else. That's on you.
- A one-time safe harbor already governs how you had to allocate old, pooled basis. Rev. Proc. 2024-28 let taxpayers reasonably allocate "unused basis" across wallets as of January 1, 2025 — but the window to lock that allocation in is closing or has already closed for most filers.
- Reconciling now, before the broker data starts flowing, is cheaper than reconstructing years of trades under audit pressure later.
What 1099-DA actually reports, and when
Form 1099-DA, Digital Asset Proceeds From Broker Transactions, is the crypto industry's answer to the familiar 1099-B for stocks. Under final Treasury and IRS regulations, brokers — centralized exchanges, and eventually other digital asset intermediaries — must report customer sales and exchanges to the IRS.
The rollout happens in stages, and the stages matter for what you actually see on your form this year versus next:
- Transactions in 2025 (the forms you may have already received, or will soon): gross proceeds only. The IRS granted transitional good-faith relief to brokers under Notice 2024-56, acknowledging that basis systems weren't ready industry-wide.
- Transactions in 2026 and later: basis reporting phases in, but narrowly. It applies to digital assets acquired on or after January 1, 2026, and held continuously in the same broker account until sale — what the regulations call "covered securities." The first 1099-DA forms carrying basis data won't land until you file your 2026 return in 2027.
That narrow scope is what investors tend to miss. It's tempting to read "basis reporting starts in 2026" and assume the problem is solved going forward. It isn't — not for anyone who moves assets around, which in crypto is close to everyone.
Why broker-reported basis won't match your records
Here's the mechanism. A digital asset is only a "covered security" with mandatory basis reporting if it was bought at that broker and never left. The moment you withdraw crypto to a self-custody wallet and send it back later, move assets between exchanges, bridge tokens across chains, or deposit staking/airdrop/DeFi rewards at an exchange, that unit becomes a "noncovered security" for the receiving broker. The broker has no reliable way to know what you originally paid, so it isn't required to report basis at all — and if it reports something, it may show $0 or the value at transfer-in, neither of which reflects your real cost.
You might think: doesn't the receiving exchange at least see when the coins arrived and log that as basis? Sometimes — but "when it arrived" isn't "what you paid." If a broker defaults to a transferred-in deposit as zero-basis and you don't correct it, you could overstate your gain, and your tax bill, by the full sale price.
Worked example: the transferred-wallet basis gap
Say you bought 2.4 ETH on Coinbase in March 2021 for $6,840 ($2,850/ETH), moved it to a hardware wallet in 2023, then to Kraken in 2024, and sold it on Kraken in June 2026 for $11,280.
Your actual gain is $4,440 ($11,280 − $6,840). But Kraken never saw the purchase — it only saw 2.4 ETH arrive from an outside wallet in 2024. Kraken's 1099-DA will report the $11,280 in proceeds, but the basis field may show $0, may show the fair market value on the 2024 deposit date (roughly $8,160, still wrong), or may simply be flagged "noncovered."
Filing on Kraken's number as-is means either a phantom $11,280 gain or a distorted $3,120 gain — both wrong, and both fixable only with your own 2021 purchase records.
(This example uses illustrative, non-round figures for teaching purposes; it is not a projection of any specific taxpayer's results.)
The one-time safe harbor you may have already needed
Before 2025, many investors used a "universal" method — pooling basis across every wallet they owned. Final regulations under Treas. Reg. 1.1012-1(j) end that: basis identification now happens on a wallet-by-wallet or account-by-account basis for anything acquired on or after January 1, 2025.
To ease the transition, Rev. Proc. 2024-28 created a one-time safe harbor: taxpayers could take a "snapshot" as of January 1, 2025, and reasonably allocate their pooled, unused basis across the wallets and accounts that actually held the remaining coins. The deadline to complete that allocation was the earlier of:
- The date and time of your first 2025 sale of that type of digital asset, or
- The due date — including extensions — of your 2025 tax return.
If you sold any crypto early in 2025 without making an allocation first, the safe harbor for that asset type has already closed, and the default FIFO-by-wallet rule applies to whatever basis records you can substantiate. If you haven't sold that asset type yet and requested a filing extension, you may still be inside the window through the extended due date of your 2025 return.
The catch
None of this is retroactively forgiving. A few honest limitations:
The safe harbor is irrevocable. Once you allocate basis to a wallet, you can't undo it later if it turns out unfavorable.
It doesn't create basis — it only lets you allocate basis you can already substantiate. Missing original purchase records can't be manufactured by the safe harbor.
A "noncovered" flag doesn't mean the IRS ignores the sale. You still answered "yes" to the digital asset question on Form 1040, and the absence of broker-reported basis just shifts the burden to you.
DeFi and cross-chain activity compounds the problem, since DeFi transactions often involve wrapped tokens and bridging that brokers can't see at all.
How to reconcile your own records now
Waiting until the 2027 filing season, when basis-inclusive forms start arriving, is the wrong move — the gaps exist now for anything you've already transferred. Practical steps:
- Pull a full transaction history from every exchange and wallet you've used, not just your current broker — purchase confirmations, trade histories, and wallet explorers all count.
- Document your allocation method in writing, noting the date, asset, and which wallet received which lot of basis, exactly as Rev. Proc. 2024-28 requires for a defensible allocation.
- Reconcile per-wallet, not in one giant spreadsheet total. The rules are account-by-account now.
- Flag every transfer-in as a "noncovered" event and attach your own basis documentation before you sell.
- Treat staking rewards and airdrops as having basis equal to fair market value on receipt — that basis needs to travel with the asset after it moves wallets.
Where Harness comes in
Reconciling years of cross-wallet crypto activity against a patchwork of broker reporting rules is exactly the kind of documentation-heavy problem a specialist earns their fee solving. Harness connects you with tax advisors experienced in crypto and digital asset accounting who can rebuild your basis history and make sure what you file matches what actually happened, not just what your broker's 1099-DA shows.
Putting it all together
Before you rely on any 1099-DA for cost basis, confirm three things: (1) whether the asset sold was "covered" — bought and held at that same broker the entire time; (2) whether you completed a Rev. Proc. 2024-28 allocation for pre-2025 pooled basis, and can document it; and (3) whether your own records, not the broker's, will hold up if the IRS asks. If any of those is shaky, that's the conversation to have with an advisor before your next filing deadline, not after.
Frequently Asked Questions
Does Form 1099-DA report cost basis for 2025 transactions? No. For the 2025 tax year, brokers report gross proceeds only. Cost basis reporting is scheduled to begin with digital assets acquired on or after January 1, 2026, with the first basis-inclusive forms issued in early 2027.
What is a "noncovered" digital asset security? A digital asset acquired before January 1, 2026, or transferred in from an outside wallet or another broker. Brokers aren't required to report cost basis for noncovered assets, so substantiating basis falls on the taxpayer.
What is the Rev. Proc. 2024-28 safe harbor? A one-time IRS allowance letting taxpayers allocate previously pooled, "unused" cost basis across the specific wallets and accounts holding their remaining crypto as of January 1, 2025, easing the shift to wallet-by-wallet basis tracking.
Is it too late to use the Rev. Proc. 2024-28 safe harbor? It depends on the asset. Allocation had to be completed by the earlier of your first 2025 sale of that asset type or the due date, with extensions, of your 2025 return. If you already sold in 2025 without allocating, that window is closed; if you extended and haven't sold yet, you may still have time.
Do I need to track basis for crypto transferred between my own wallets? Yes. The transfer itself isn't taxable, but the original basis and acquisition date still need to travel with the asset so you can report the correct gain or loss when you eventually sell.
What happens if I just use whatever number is on my 1099-DA? If the form is missing basis or shows an incorrect figure and you file based on it anyway, you risk overpaying tax on a phantom gain or underreporting a real one — either of which can trigger IRS correspondence as broker data volume increases.
Disclaimer:
This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax professional for your specific tax situation.
Tax related products and services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as "Harness Wealth". Harness Wealth Advisers LLC is a paid promoter, internet registered investment adviser. Registration does not imply a certain level of skill or training. This article should not be considered tax or legal advice and is provided for informational purposes only. Please consult a tax and/or legal professional for advice specific to your individual circumstances. This article is a product of Harness Tax LLC.
Content was prepared by a third-party provider and not the adviser. Content should not be regarded as a complete analysis of the subjects discussed. Although we believe the content is reliable, it is not guaranteed as to accuracy and does not purport to be complete nor is it intended to be the primary basis for financial or tax decisions.
This blog contains links to other web sites as a convenience to the reader. These include links to web sites operated by one or more of the following: government agencies, nonprofit organizations and/or private businesses. When you use any of these links, you are no longer viewing our material, and our Privacy Notice will not apply. When you link to another web site, you are subject to the privacy policy of that new site. When you follow a link to one of these sites neither Harness, nor any agent, officer, or employee of Harness warrants the accuracy, reliability or timeliness of any information published by these external sites, nor endorses any content, viewpoints, products, or services linked from these systems, and cannot be held liable for any losses caused by reliance on the accuracy, reliability or timeliness of their information. Portions of such information may be incorrect or not current. Any person or entity that relies on any information obtained from those web sites does so at her or his own risk.