The basis of your crypto: 1099-DA cost basis rules

If you don’t know the price you originally paid for an investment, it’s hard to know whether you made money or lost money. That original purchase price is referred to as your cost basis. It’s important to calculate your taxable gain or loss upon sale or disposition of the investment.

Historically, cost basis reporting has mainly applied to stocks and other traditional investments reportable on Form 1099-B. To bring more transparency to crypto tax reporting, the IRS introduced a new tax form called the 1099-DA. For the 2025 tax year, including cost basis on Form 1099-DA is optional, but beginning in 2026, certain crypto sales will require it. Ensuring that you report the correct cost basis is critical as it directly affects how much tax you pay.

In this guide, we’ll explain 1099-DA cost basis rules so you can verify the numbers, add or correct details from transfers or unsupported trades, and report your crypto taxes accurately.

What is cost basis in crypto?

Cost basis in crypto is the original amount an investor paid to acquire a digital asset. This figure also includes any transaction fees paid at the time of purchase. For example, buying 1 Ethereum (ETH) for $3,100 (market price of $3,000 and $100 in fees) gives that ETH a cost basis of $3,100.

Cost basis is needed to determine the taxable gain (or loss) upon an asset’s disposition. In the example above, if the ETH is later sold for $4,000, the taxpayer has a taxable gain of $900, calculated by subtracting the cost basis of $3,100 from the selling price of $4,000. It is critical to track and report the correct cost basis to avoid overpaying on your taxes when selling your crypto.

How IRS Form 1099-DA handles cost basis reporting

Starting with the 2025 tax year, custodial brokerages like centralized crypto exchanges (CEXs) must send users a new tax form, Form 1099-DA, for each taxable sale or exchange of digital assets. For the 2025 tax year, all reported dispositions will be of noncovered assets, meaning that cost basis reporting will not be required. Brokerages may choose to report cost basis if they have the necessary data.

Starting with the 2026 tax year, cost basis reporting will be mandatory for covered digital assets (those acquired on or after Jan. 1, 2026 and kept within the same exchange). Even after 2026, however, cost basis reporting won’t be required for noncovered digital assets. 

Could 1099-DA cost basis data be incorrect? 

Cost basis only has to be reported on dispositions of covered assets since the exchange has the full history on these assets. For dispositions of noncovered assets, whether acquired before 2026 or transferred into the exchange, cost basis is not required to be reported, but it may be reported if the exchange has the information.  Remember that if you move digital assets to a private or cold wallet, the CEX loses visibility into your cost basis, so it is your responsibility to track and ensure you report accurately. Retain trade confirmations, transfer records, and basis worksheets; discrepancies with 1099‑DA should be reconciled and documented.

The difference between a digital asset’s value and its tax basis increases when prices rise, which means a larger taxable gain when you sell. Cost basis calculations are more complicated if you participate in decentralized finance (DeFi) activities like staking or yield farming, both of which qualify as ordinary income. Exchanges also can’t determine the fair market value (FMV) of cryptocurrencies sent to a CEX account in situations like OTC deals and peer-to-peer trades, where no centralized order book price exists. The most reliable way to reconcile these transactions and calculate cost basis accurately is with software like CoinTracker, which monitors every transfer between crypto exchanges, wallets, and DeFi protocols.

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Accepted IRS methods for calculating cost basis

The IRS currently recognizes two ways to calculate cost basis: Specific Identification (Spec-ID) and First In, First Out (FIFO). 

With Spec-ID, investors choose which specific lots of crypto purchases to use when calculating cost basis against the sale price. There are also variations of Spec-ID, such as Highest In, First Out (HIFO) – which applies the highest purchase prices first – and Last In, First Out (LIFO), which starts with the most recent purchases. 

While the IRS allows Spec-ID, HIFO, and LIFO, investors must select their method before placing a trade. Otherwise, FIFO becomes the default, calculating cost basis using the earliest purchase price.

Beginning in 2025, there will be no option to retroactively change cost basis at year-end. Although there’s temporary relief for 2025 (allowing taxpayers to rely on their books and records), crypto traders still need to choose their preferred cost basis calculation method in advance.

Simplify crypto tax compliance with CoinTracker 

Form 1099-DA won’t capture every detail needed to calculate an accurate cost basis. You still need to track whenever you move crypto in or out of exchanges, make purchases using crypto, or participate in DeFi. 

CoinTracker simplifies the process by syncing to all your exchange APIs and public wallet addresses. CoinTracker’s Portfolio Tracker shows every transfer for your digital assets and calculates crypto gains for Form 8949 automatically.

Get started for free and see how easy it is to calculate cost basis with CoinTracker. 

FAQ

Does 1099-DA include cost basis?

For 1099-DAs issued in 2026 (for the 2025 tax year), cost basis will only be reported if the exchange has the information and chooses to report the cost basis to the user. Starting with 1099-DAs issued in 2027 (for the 2026 tax year) cost basis reporting will be required for covered cryptocurrencies. A covered cryptocurrency is one acquired on or after Jan. 1, 2026 by a non-exempt user, and kept at the same exchange until selling or trading the cryptocurrency. In this case, the brokerage must report the cost basis. If the assets were purchased before 2026 or transferred off the exchange before the sale, they’re considered noncovered, and the brokerage doesn’t have to report the cost basis. 

How do taxpayers calculate crypto gains?

Taxpayers calculate taxable gains by subtracting an asset’s cost basis from the sale proceeds. If multiple lots of an asset are held, to calculate which units are sold, FIFO (first in, first out) is the default method, but traders can choose alternatives like Spec-ID, HIFO, or LIFO before making a trade. Holding an asset for more than a year usually qualifies for lower long-term capital gains rates. Shorter holding periods are taxed at higher ordinary income rates, however.

What if my crypto cost basis is missing? 

The IRS requires cost basis to be reported for each cryptocurrency sold to determine the gain or loss. If this data is missing, you’ll need to reconstruct it using your purchase records, acquisition dates, and transfer history. Crypto tax software such as CoinTracker can help by linking to exchange APIs and public wallet addresses, compiling your transaction history, and calculating cost basis.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.