Your Crypto 1099-DA Cost Basis Is Probably Wrong — Here's the Fix
The IRS's new Form 1099-DA is showing millions of crypto investors a taxable gain on coins they actually lost money on, because exchanges often don't know the real cost basis. Why it happens, and exactly what to do before the IRS notices a mismatch.
If you’ve already looked at a 2025 Form 1099-DA from a crypto exchange and felt your stomach drop, you’re not imagining things. A growing body of analysis on this year’s first-ever digital asset reporting forms found that a lot of them are showing gains that aren’t real — sometimes tens of thousands of dollars of gains that aren’t real — on coins where the actual result, once you account for what was really paid, was flat or a loss. If you’re already dealing with a portfolio that’s down, the last thing you need is a form telling the IRS you made money you didn’t make.
This is general educational information, not tax advice. Form 1099-DA is new for the 2025 tax year, the rules around it are still being clarified, and your specific situation depends on your records and your preparer’s judgment. What follows is the mechanism behind the problem and the standard way to correct it — confirm the details with a professional before you file or amend anything.
What Form 1099-DA actually is
Form 1099-DA is the IRS’s new form for digital asset broker reporting, required under rules that phased in starting with 2025 transactions. It’s built on the same idea as the 1099-B that’s existed for stock brokers for years: the platform where you traded reports your activity directly to the IRS, and the IRS matches that against what you report on your own return.
The rollout is happening in stages, and the stage matters a lot for what shows up on your form:
- For 2025 transactions (the forms most people are seeing for the first time this year), brokers generally report gross proceeds — how much you sold for — without being required to also report your cost basis.
- Starting with 2026 transactions, brokers are expected to also report cost basis, but only for assets they can actually verify — generally ones you bought and held on that same platform the whole time.
That second bullet is the source of the whole problem: reporting proceeds without basis, or with an unverifiable basis, on a form the IRS also sees.
Why the cost basis is so often missing or wrong
Cost basis is what you paid for an asset. Gain or loss is proceeds minus basis. If the form reports the proceeds but treats the basis as zero, or leaves it blank, the arithmetic the IRS sees makes it look like your entire sale amount was pure profit — even if you bought the coin at a much higher price and actually sold at a loss.
This happens constantly in crypto for a reason that’s specific to how people actually use it, and different from how most people hold stocks: crypto moves between platforms far more than stock does. You buy on one exchange, move it to a hardware wallet for safekeeping, maybe move it again after an exchange started looking shaky, and eventually sell somewhere else entirely — sometimes years later. Every one of those transfers breaks the chain of custody that would let the final selling platform verify what you originally paid.
The technical term for this is a “covered” vs. “noncovered” asset. A covered asset is one the broker can actually verify the acquisition cost for — generally, something bought and held on that exact platform without ever leaving. A noncovered asset is everything else: coins bought before the new rules took effect, coins transferred in from a self-custody wallet, or coins transferred in from a different exchange. For noncovered assets, the receiving broker has no reliable way to know what you paid, and current rules don’t require them to guess — so the basis field often comes back as zero, blank, or simply “not reported.”
One widely cited analysis, reported by CPA Practice Advisor in early 2026, modeled exactly this scenario — investors who bought on one platform and sold on another — and found an average overstatement of roughly $14,500 in phantom capital gains per affected investor, extrapolating to hundreds of billions of dollars in overstated gains across the broader crypto-investing population if left uncorrected. That’s not a small rounding error. It’s the difference between a filing that reflects reality and one that could trigger an IRS notice demanding tax on money you never actually made.
There’s a second layer to this too: the IRS also moved away from letting people track cost basis in one pooled, “universal” bucket across every wallet and exchange they use, and now expects basis to be tracked account by account — literally per wallet, per platform — going forward. A transition safe harbor existed for taxpayers to reasonably allocate their existing, pre-2025 unused basis to specific accounts before this took effect. If you never did that allocation exercise, your basis picture across accounts may already be muddier than it needs to be, independent of what any single 1099-DA says.
Worked example
Say you bought 2 BTC on Exchange A in 2021 for a total of $80,000. In 2023, worried about Exchange A’s solvency, you moved both coins to a hardware wallet you control. In 2025, you moved them again — this time to Exchange B — and sold both for a total of $70,000, a real loss of $10,000.
Exchange B never saw your original 2021 purchase. All it saw was two bitcoin arriving from an external wallet and then being sold for $70,000. Under the current rules, Exchange B may report that $70,000 as proceeds with no basis attached — not because anyone did anything wrong, but because the exchange genuinely doesn’t have a verified basis figure to report. Read literally by an automated system, that 1099-DA implies you have a $70,000 gain, not a $10,000 loss — a swing of $80,000 in the wrong direction on a single transaction.
If you file using your own accurate records — the original 2021 purchase confirmation, showing $80,000 paid for the two coins — you report a $10,000 loss instead, which is what Tax-Loss Harvesting for Crypto covers using to offset other gains. The form said gain. Your own documentation says loss. Your own documentation, not the form, is what you’re supposed to file.
What to actually do about it
Don’t file the form’s number without checking it. Treat every 1099-DA you receive as a starting point to verify, not a final answer, especially for any asset you ever transferred between wallets or platforms. If the basis field is blank, zero, or looks obviously wrong, that’s a signal to dig into your own records before you file, not something to shrug off.
Rebuild your real cost basis from your own records. Purchase confirmations, exchange trade histories, and wallet transaction logs are what establish what you actually paid, independent of what any single platform reports. The Records You Actually Need to Claim a Capital Loss covers what to gather and how to organize it; the discipline is the same whether you’re proving a loss or correcting an overstated gain.
Report the corrected number using the standard adjustment mechanism. When the basis a broker reported to the IRS differs from your actual basis, Form 8949 has a specific process for this: report the transaction with the broker’s reported figures, then apply an adjustment column and code to show your corrected basis and the resulting real gain or loss. This isn’t a workaround or a loophole — it’s the intended way to handle exactly this situation, and it’s the reason keeping your own records matters more than ever now that a form exists that might quietly get it wrong.
Pick a consistent method and stick with it going forward. Now that basis has to be tracked per account rather than pooled universally, which specific lot you treat as sold on each platform affects your numbers going forward the same way it always has — FIFO, LIFO, HIFO: The Accounting Method Choice That Changes Your Tax Bill walks through how to think about that choice. Applying it consistently, per account, from here forward avoids recreating this same mess for your 2026 transactions.
If a notice does show up, don’t panic and don’t ignore it. An automated mismatch between what a broker reported and what you filed can generate a notice assuming the broker’s version is correct. It isn’t automatically correct — it’s just what the broker was able to verify. Respond with your documentation rather than assuming the number on the notice is the real number, and loop in a professional if the amount involved is significant.
The uncomfortable part of this new reporting regime is that it shifts real work onto you at exactly the moment a new form makes it look like the paperwork is finally being handled for you. It isn’t, fully — not yet, and maybe not for a few more filing seasons while brokers and the IRS work out the rough edges. Until then, your own records are still the thing standing between an accurate return and a tax bill on money you never made.
FAQ
Do I have to report the gain exactly as shown on my 1099-DA, even if I know the cost basis is wrong? No — the 1099-DA is information the broker sends to the IRS, not a binding statement of what you owe. If you have records showing your real cost basis is higher than what the form reports (or missing entirely), you report the correct number on your return using Form 8949, with an adjustment code showing you’re correcting the basis the broker reported. What matters is that your own number is accurate and documented, not that it matches the form.
What if I never received a 1099-DA at all, or my exchange says it isn’t required to send one? You’re still required to report your actual crypto transactions accurately, whether or not a broker sent you a form. Not receiving a form is also not proof nothing was reported; some smaller platforms and foreign exchanges may not be covered brokers under the new rules at all, which is a separate question from whether your gains and losses need to be on your return.
Does this only affect people who trade a lot, or can it happen to someone who just moved coins between wallets once? It can absolutely happen from a single transfer. The trigger isn’t trading frequency — it’s whether the exchange that eventually sold the asset was the same one that has a verified record of your original purchase price. Move coins from a wallet you control, or from a different exchange, onto the platform where you eventually sell, and that receiving platform frequently has no legitimate way to know what you actually paid.
Is this a US-specific issue, or does it apply everywhere? Form 1099-DA is specifically an IRS reporting requirement and only applies to US taxpayers and US-covered brokers. Other countries have their own, different crypto reporting regimes with their own gaps and rules. If you file outside the US, the mechanism described here doesn’t directly apply, but the underlying lesson — that your own records are what protect you, not whatever a platform reports — generally does.