Over 150 Million Americans Must Report Digital Assets on Form 1040 (2025 Update)
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Key takeaways
- Every US taxpayer must answer the digital asset question on Form 1040, whether or not they own crypto.
- Starting in 2025, custodial brokers like Coinbase, Kraken, and Gemini issue Form 1099-DA reporting your gross proceeds to the IRS.
- Checking “yes” doesn’t automatically mean you owe tax. Only sales, trades, and other disposals are taxable events.
- Intentionally answering “no” when you should have answered “yes” is tax fraud, and the IRS now has direct broker data to cross-check.
The Form 1040 digital asset question, explained
Every US individual income tax return now opens with a digital asset question. The current 2025 version reads:
“At any time during 2025, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
The IRS first added a crypto question to Schedule 1 in 2019. It moved to the main Form 1040 in 2020 using “virtual currency” wording, shifted to “digital asset” in 2022, and now sits at the top of every individual return.
That means more than 150 million Americans must check yes or no on this question every year.
Remember, intentionally lying on this question is considered tax fraud.
Form 1099-DA: New broker reporting for 2025
The bigger 2025 story is what brokers are now required to send the IRS on your behalf.
Starting January 1, 2025, custodial digital asset brokers must issue Form 1099-DA for sales and exchanges of digital assets. That includes most US-based exchanges, hosted wallet providers, digital asset kiosks, and certain payment processors. Foreign brokers and non-custodial wallets are not required to issue this form.
What’s reported in 2025: gross proceeds only. Brokers report how much you received from each sale or trade, but they don’t report what you paid for the asset.
What’s reported starting in 2026: cost basis on certain transactions. The first Form 1099-DA showing basis data will arrive in early 2027, covering 2026 transactions.
Transitional relief: the IRS will not impose penalties on brokers for the 2025 tax year if they make a good-faith effort to file Forms 1099-DA accurately and on time.
Covered vs. non-covered assets
The 1099-DA regime introduces the same “covered” and “non-covered” distinction long used for stocks.
Covered assets are those for which the broker reports cost basis to the IRS.
Non-covered assets are those where you must calculate and report cost basis yourself.
For tax year 2025, every digital asset is treated as non-covered. That means you’re responsible for tracking your own cost basis for every 2025 transaction. If your records don’t agree with the broker’s gross-proceeds figure, the burden of proof is on you.
The IRS’s expanding crypto enforcement toolkit
Form 1099-DA is the latest in a series of steps that have given the IRS direct visibility into crypto activity.
John Doe summonses to Coinbase, Kraken, and Circle have already produced records on hundreds of thousands of US users.
Warning letters (Letter 6173, 6174, and 6174-A) have gone to tens of thousands of taxpayers identified through those records.
Criminal prosecutions are accelerating. In December 2024, Frank Richard Ahlgren III became the first person convicted of tax evasion solely for cryptocurrency-related violations, receiving a two-year federal prison sentence and ordered to pay over $1 million in restitution.
That means the IRS has more visibility into your crypto activity than ever before. Discrepancies between your tax return and the data brokers send the IRS can trigger an audit, additional tax, penalties, or, in extreme cases, criminal charges.
How crypto is taxed at a glance
The IRS treats crypto as property, not currency. Just like stocks, bonds, or real estate, you owe tax when you sell, trade, or otherwise dispose of crypto for more or less than you paid for it.
Example: Selling bitcoin at a gain
David buys 0.1 BTC in March 2025 for $9,000.
In November 2025, he sells the same 0.1 BTC for $11,000.
David has a $2,000 short-term capital gain, reported on Form 8949.
If you sell crypto for less than you paid, you can claim a capital loss instead. Capital losses can offset other capital gains and up to $3,000 of ordinary income per year.
For the full mechanics of how crypto is taxed, check out our complete guide to cryptocurrency taxes.
How to calculate your crypto taxes in minutes
Looking for an easy way to report your crypto taxes? Try CoinLedger, the crypto tax software trusted by more than 700,000 investors around the world.
CoinLedger integrates with hundreds of exchanges, wallets, and blockchains, so you can import your historical transactions in a few clicks. Once your data is in, you can generate IRS forms like Form 8949 and import them directly into TurboTax or TaxAct. You can also reconcile your records against the Form 1099-DA your broker sends you.
Frequently asked questions
- Do I have to check “yes” if I only bought crypto in 2025?
- Do I have to check “yes” if I held crypto in a self-custody wallet without trading?
- What if I checked “no” on a prior return but should have checked “yes”?
- Are NFTs and stablecoins included in “digital assets”?
- What is Form 1099-DA and when will I receive it?
- Will Form 1099-DA show my cost basis?
- What happens if my Form 1099-DA doesn’t match my records?
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How we reviewed this article
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