IRS Cost Basis Crackdown: How the New 1099-DA Rules Change Your Crypto Taxes in 2026

The Internal Revenue Service (IRS) is executing its most aggressive expansion of digital asset surveillance to date, as the second phase of Treasury Decision 10000 goes into full effect for the 2026 tax year. For everyday investors trading major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), this regulatory shift means that custodial exchanges are now legally required to track and report your exact cost basis directly to the government. If you have been buying and selling digital assets on centralized platforms, the era of self-reporting without third-party verification is officially over, changing the financial math for a vast number of retail wallets.

By Raj Patel | July 5, 2026

The Ruling

To understand how we arrived at this point, we have to look back at the landmark regulatory package known as Treasury Decision 10000 (T.D. 10000). Published on July 9, 2024, this administrative ruling established the framework for information reporting on digital asset sales and exchanges by custodial brokers. The IRS structured this reporting requirement in distinct, phased stages to give the industry time to adapt. In the first phase, which took effect for transactions occurring on or after January 1, 2025, centralized exchanges were forced to report the gross proceeds of all customer sales. Taxpayers saw the first fruits of this rule in early 2026 when they received the brand-new Form 1099-DA (Digital Asset Proceeds From Broker Transactions) in their mailboxes.

However, the real teeth of T.D. 10000 are showing now in 2026. As of January 1, 2026, custodial brokers are officially required to track and report the adjusted cost basis of customer assets. In plain English, your cost basis is the original amount you paid to buy a cryptocurrency, including any transaction fees. Think of it like buying a house: if you purchase a home, your cost basis is the price you paid plus closing costs. If you later sell that house, you only owe taxes on the profit, not the entire sale price. Under the new rules in effect for the 2026 tax year, if you buy Bitcoin (BTC) on a centralized exchange at a lower price and sell it at today’s price of $62,640, the exchange will report both the $62,640 sale price and your original purchase price to the IRS on Form 1099-DA, showing a clear capital gain. The same applies to altcoins like Ethereum (ETH); if you acquired ETH when it was cheaper and sell it today at $1,773.17, your broker will report the exact gain based on your original purchase price directly to the government.

While custodial exchanges like Coinbase and Kraken are fully bound by T.D. 10000, the story is very different for decentralized finance (DeFi). The Treasury Department had originally proposed a companion regulation, Treasury Decision 10021 (T.D. 10021), designed to force decentralized platforms, non-custodial wallets, and smart contracts to report user data. However, the crypto industry and Congressional allies pushed back hard, arguing that decentralized protocols cannot comply with custodial rules because they do not collect personal identifying information. Utilizing the Congressional Review Act (CRA), Congress passed a joint resolution disapproving the rule, and President Donald Trump signed H.J. Res. 25 (which became Public Law 119-5) into law on April 10, 2025. This effectively repealed T.D. 10021, and the IRS formally removed the rule from the Code of Federal Regulations on July 11, 2025. Under CRA rules, the IRS is now barred from issuing a substantially similar rule without explicit new legislation from Congress, leaving DeFi platforms exempt from these reporting burdens for the foreseeable future.

International Precedents

The United States is not acting in a vacuum. The implementation of T.D. 10000 and the rollout of Form 1099-DA are part of a broader, coordinated global campaign to end tax evasion in the digital asset space. The most significant international driver of this trend is the Organisation for Economic Co-operation and Development (OECD) and its Crypto-Asset Reporting Framework (CARF). CARF was designed to automate the exchange of tax information across international borders, ensuring that if a US citizen trades crypto on an offshore exchange, the foreign tax authority will automatically share that data with the IRS.

As of mid-2026, 76 jurisdictions have committed to implementing the OECD’s Crypto-Asset Reporting Framework (CARF). Because implementation occurs in waves, the participation is spread out over time. As of January 1, 2026, 48 jurisdictions officially began implementing the framework, requiring crypto-asset service providers to start collecting user and transaction data. The first automatic exchanges of this information among these countries are scheduled to take place in 2027. A second wave of 27 jurisdictions is scheduled to join the reporting process beginning in 2027, with information exchange starting in 2028. Other countries have committed to implementation timelines extending into 2029.

This global framework works in much the same way as the Foreign Account Tax Compliance Act (FATCA) did for traditional banking, which successfully dismantled banking secrecy years ago. By establishing standardized definitions for digital assets and broker responsibilities, CARF and T.D. 10000 ensure that global crypto platforms must build unified compliance software. For regular investors, this means there are fewer and fewer places to hide capital gains. Even if you transfer your digital assets to foreign custodial platforms, the international network of automated reporting will eventually report those transactions back to your home country’s tax agency. The US Treasury’s decision to mandate cost basis tracking starting in 2026 is designed to align domestic reporting with these upcoming international standards, preparing the American market for seamless integration with the CARF network.

Enforcement Reality

What does this mean for your day-to-day wallet operations? The shift from gross proceeds reporting in 2025 to cost basis tracking in 2026 introduces a massive administrative challenge for both brokers and investors. During the 2025 tax year, brokers only reported the total sale amounts (gross proceeds). This led to widespread concern in early 2026, as taxpayers received Form 1099-DA showing large sums of money moving through their accounts without any cost basis listed. The IRS automated matching systems assumed a cost basis of zero for taxpayers who failed to file a detailed Form 8949, resulting in massive, incorrect tax bills. Investors had to scramble to locate their original purchase receipts to prove what they actually paid for their assets, placing the entire burden of record-keeping on the individual.

Now that we are in the 2026 tax year, custodial exchanges are doing the heavy lifting of tracking cost basis for you. But there is a major catch: exchange transfers. Let’s say you buy Solana (SOL) on Exchange A for $81.06 and later transfer those tokens to Exchange B. Because Exchange B does not know what you paid for the SOL on the first platform, they cannot accurately report your cost basis when you eventually sell. Under the current IRS guidelines, if you transfer tokens between exchanges, the cost basis information may not transfer with them, leaving the second exchange to report the cost basis as “unknown” or zero. This forces you to manually reconcile your transactions. To protect your portfolio from automated IRS penalties, you must maintain immaculate records using third-party crypto tax software. If the data you file on your tax return does not match the Form 1099-DA sent to the IRS by your exchange, it will automatically trigger a red flag, leading to an automated audit notice.

Market Shockwaves

The implementation of these strict reporting requirements has sent shockwaves through the digital asset markets, affecting both retail behavior and institutional participation. Centralized exchanges have had to spend significant resources to upgrade their databases, hire tax compliance experts, and integrate complex cost-basis tracking algorithms. These rising operational costs are beginning to trickle down to retail users in the form of higher trading fees and wider spreads. Some smaller custodial platforms have even chosen to shut down their US operations entirely, citing the heavy compliance burden of T.D. 10000. Meanwhile, the repeal of T.D. 10021 in 2025 provided a major boost to decentralized finance. With non-custodial platforms exempt from Form 1099-DA obligations, many privacy-focused traders have migrated away from centralized exchanges, boosting liquidity on decentralized protocols.

However, for the broader market, compliance is acting as a major bridge to institutional adoption. Major financial institutions and corporate treasuries are far more comfortable investing in asset classes that have clear, standardized tax frameworks. Having a formalized document like Form 1099-DA makes digital assets behave like traditional equities, simplifying corporate accounting. This institutional confidence has helped stabilize asset prices. For example, Bitcoin is trading steadily around $62,640, Ethereum is holding at $1,773.17, and altcoins like Solana ($81.06), Cardano ($0.1897), and XRP ($1.13) are seeing sustained volume from regulated investment funds. While the compliance rules may feel like a headache for retail traders, they are cementing crypto’s status as a permanent, legitimate component of the global financial system.

Closing Thoughts

The era of the digital “wild west” is drawing to a close, and the IRS has made it clear that tax compliance is non-negotiable. The rollout of cost basis tracking for the 2026 tax year marks a permanent shift in how digital assets are treated by tax authorities. While the successful repeal of T.D. 10021 spared decentralized finance from these intrusive surveillance rules for now, custodial users must prepare for a fully transparent future. The most important step you can take today is to review your exchange accounts, download your historic CSV transaction files, and make sure your cost basis records are complete. Do not wait until early 2027 to start sorting through your trades. By taking control of your tax data now, you can avoid the automated IRS notices that are sure to follow this new era of digital asset reporting.

Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial, legal, or tax advice. Cryptocurrency markets are highly volatile, and tax regulations are subject to change. Please consult with a certified public accountant (CPA) or a qualified tax professional regarding your specific financial situation before making any investment or tax-reporting decisions.