IRS Finalizes Reporting Rules for Cryptocurrency Tax Guidelines

By Madz Dizon

Jun 30, 2024 08:24 PM EDT

IRS Finalizes Reporting Rules for Cryptocurrency Tax Guidelines — Polyhedra Network secures $20M in funding, led by Polychain Capital and Animoca Brands, valuing at $1B. Innovative zero-knowledge proofs drive its global expansion in Web 3 infrastructure.
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The final regulations on reporting requirements for brokers of digital assets, including cryptocunrrency, have been released by the US Department of the Treasury and the IRS.

Owners of digital assets have always been subject to tax on the sale or exchange of digital assets, so this is not a new tax.

Comprehensive Reporting Regulations for Digital Asset Brokers

Nevertheless, the Infrastructure Investment and Jobs Act (IIJA) has implemented reporting requirements that mirror those already imposed on conventional financial services. These requirements aim to assist taxpayers in accurately filing their returns and fulfilling their tax obligations, according to Forbes.

Starting in 2026, brokers will be required to report the gross proceeds from the sale of digital assets for all transactions that took place in 2025.

In addition, brokers will need to provide information regarding the tax basis of specific digital assets, beginning in 2027 for sales made in 2026.

When a digital asset is sold, it is exchanged for cash and other digital assets. When a digital asset is sold, it involves exchanging it for broker services, securities, or other property that needs to be reported.

Expanded Scope of Regulations on Digital Asset Transactions

This also applies to certain real estate transactions starting from January 1, 2026. At long last, a digital asset sale involves one party exchanging a digital asset with a PDAP in return for cash, another digital asset, or the payment of that digital asset to a second party. This transaction is considered a PDAP sale, as long as it doesn't meet the criteria for any other type of sale.

The final regulations now apply to a range of entities involved in the sale and handling of digital assets, such as brokers, custodial trading platforms, wallet providers, digital asset kiosks, and digital asset payment processors.

"These regulations are an essential part of the larger effort on high-income individual tax compliance. We need to ensure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets," IRS Commissioner Danny Werfel said.