Tracking basis for digital assets

Starting Jan. 1, 2025, the IRS’s final regulations require taxpayers to track cost basis for digital assets on a wallet-by-wallet and account-by-account basis. The old “universal wallet” method, where a taxpayer treated all holdings across multiple exchanges, wallets and cold storage as one big pool and cherry-picked basis across accounts is no longer valid. 

Under the new rules, if a taxpayer sells a cryptocurrency token from a specific wallet or exchange, they must use the basis of the asset held in that same wallet or account and not use a basis from another wallet or account deemed “better.”  This means clients must maintain detailed records for each wallet or exchange account, including the acquisition date, quantity, cost basis and location of every digital asset unit. The correct basis is essential because their broker may report gross proceeds and will eventually report a basis as well.

What if the basis was tracked incorrectly?

If a taxpayer used the universal wallet method and did not make a proper allocation before Jan. 1, 2025, they may face potential issues. The IRS offered transition relief under Revenue Procedure 2024-28 that allowed a one-time adjustment of basis across wallets for holdings as of Dec. 31, 2024. If they failed to take that safe harbor, they’re now “locked in” to whatever allocations were made at the start of 2025 and cannot retroactively reallocate basis from wallet to wallet. 

If their basis records are shaky, they will need to reconstruct records for 2025 by inventorying every wallet and account, mapping each acquisition and disposal, and identifying the correct basis for each wallet. If they cannot substantiate separate wallet-by-wallet basis, the IRS could disregard their basis and treat the sale as having zero cost basis, meaning the entire proceeds become taxable gain. 

In addition, accuracy-related penalties may apply (20% for negligence or understatement and up to 75%, plus potential criminal exposure in fraud cases) when the basis is unsupported.

What brokers must report now

Brokers and other “reporting persons” have already begun changing their reporting obligations for digital assets. For transactions in 2025, brokers are required to report gross proceeds from digital asset sales on Form 1099-DA, Digital Asset Proceeds From Broker Transactions. Starting with digital assets acquired on or after Jan. 1, 2026, brokers must report both gross proceeds and cost basis when the assets are sold.  That means the IRS will receive information showing the digital assets’ cost basis and sales price providing a complete picture of gain or loss. 

There are special rules for certain assets. For example, stablecoins and NFTs may be subject to aggregate reporting if sales exceed de minimis thresholds. For real estate transactions closing in 2026 that involve the use of digital assets, there are additional reporting obligations.  Non-custodial platforms (decentralized exchanges) currently may be exempt, but that exemption is temporary. 

What to do for tax filing next year

Given these changes, tax professionals and their clients should take specific steps now to prepare for the 2025 tax return (and beyond). 

• Inventory every wallet and account where digital assets resided at any point during 2025; that means exchange accounts, cold wallets and mobile wallets... nothing can be overlooked.
• Reconstruct the disposal transactions: For each sale or exchange, identify which specific wallet or account held the assets, calculate the gain or loss by applying the basis from that wallet/account, and report it on Form 8949, Sales and other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses.
• Check the reported gross proceeds against records when reviewing Form 1099-DA in 2026. If there are discrepancies, reconcile them because the IRS will compare your return with the broker data. 
• If your clients rely on manual spreadsheets or software that aggregates across wallets, treat this as an urgent upgrade. They require tracking systems that can manage wallets individually. 
• Document everything: acquisition dates, cost basis, wallet or exchange, and any transfers among wallets. Good records are your best defense.  

The IRS’s final regulations on digital asset basis represent a major shift in crypto taxation compliance, with some saying it’s the most significant change since digital assets were declared property in 2014. Basis tracking now must be precise, wallet by wallet, and brokers are required to report more as well. Whether you’re advising an individual trader or institutional investor, make sure basis tracking systems are in place, records are complete and filings reflect the new rules because the cost of getting it wrong is steep. Your clients could face a zero basis with a fully taxable gain and even penalties.