If you traded crypto on a custodial exchange in 2025, this filing season has two big realities: (1) many taxpayers will see Form 1099-DA as part of crypto tax reporting, and (2) for 2025 transactions, most statements won’t include cost basis. You still have to calculate basis to determine gain or loss.
The IRS also issued Notice 2026-20, which extends the temporary “lot identification” relief that helps taxpayers avoid getting forced into FIFO just because a broker’s systems can’t accept or process specific-lot instructions yet.
What changed (Notice 2026-20) in plain English
When your digital assets are held in custody at a broker, the regulations generally require that lot identification be communicated to the broker. Notice 2026-20 extends a temporary workaround: during the relief period, eligible taxpayers can make an adequate identification by documenting specific units (or a standing order) in their own books and records, rather than needing the broker to receive and process those instructions.
Key point: Notice 2026-20 defines the relief period as January 1, 2025 through December 31, 2026.
What the relief applies to
- Only to units of digital assets held in the custody of a broker that are sold, disposed of, or transferred during the relief period.
What the relief does not do
- It does not apply to units not held in the custody of a broker (for example, many self-custody situations).
- It does not change that brokers must report gross proceeds on Form 1099-DA beginning with 2025 activity.
- It does not apply for purposes of the digital asset information reporting rules. For 2026 transactions, the acquisition date and basis reported by a broker may not match your lot identification and basis on your own records.
Why this matters right now (1099-DA + “missing basis” reality)
The IRS has reminded taxpayers that brokers must send taxpayers a copy of the same information they report to the IRS on Form 1099-DA by February 17, 2026 and that for 2025 digital asset transactions, most statements won’t include basis, meaning taxpayers must calculate basis to determine gain or loss.
Separately, the IRS’s instructions for Form 1099-DA also state that brokers are not required to report basis for sales effected in 2025 (though they may voluntarily report it).
So the practical problem many traders are facing is: “How do I produce defensible gains/losses (and avoid FIFO surprises) when my 1099-DA may not include basis and my broker may not support lot selection cleanly?” Notice 2026-20 is the IRS’s acknowledgment that broker systems are still catching up—and that taxpayers need a workable identification path in the meantime.
What to do now: a practical checklist
1) Choose (and document) your lot-selection approach
Notice 2026-20 explicitly contemplates methods like identifying units by earliest acquired, latest acquired, or highest basis. Pick a method you can apply consistently, then document it.
2) Build a “reconciliation file” that does not depend on broker UI
- Trade confirmations / fills
- Deposits/withdrawals and transfer history (especially between venues)
- Your lot ledger (basis + holding period per unit/lot)
- Notes explaining methodology (including any standing order you’re using)
3) Plan for broker-vs-you mismatches (especially for 2026 transactions)
Notice 2026-20 warns that because this relief does not apply for information reporting purposes, the acquisition date and basis reported by a broker for 2026 transactions may not match your own lot identification and basis records. Expect that reconciliation work may be necessary.
4) If you receive a 1099-DA with issues, handle it the right way
The IRS guidance on understanding Form 1099-DA emphasizes: even if information is incorrect, don’t wait to file. Request a corrected form from the issuer and keep your correspondence.
5) Know the “report anyway” rule
Whether or not you receive a Form 1099-DA, you still must report all income, gains, and losses from digital asset transactions on your federal income tax return.
A quick example: FIFO vs Highest-Basis
This is a simplified illustration of why lot selection matters:
- You bought 1 BTC for $20,000 (older lot).
- You later bought 1 BTC for $55,000 (newer lot).
- You sell 1 BTC for $60,000.
If FIFO applies: gain = $60,000 − $20,000 = $40,000
If Highest-Basis applies: gain = $60,000 − $55,000 = $5,000
Notice 2026-20 exists largely to prevent taxpayers from being forced into FIFO solely because their broker’s systems aren’t ready to accept/process identification instructions.
FAQs
Will my 1099-DA include cost basis for 2025 activity?
Often no. The IRS has stated that most statements for 2025 transactions won’t include basis, and the Form 1099-DA instructions say brokers aren’t required to report basis for sales effected in 2025.
Does Notice 2026-20 apply to self-custody wallets?
The notice’s temporary relief does not apply to units not held in the custody of a broker.
What if I used a foreign exchange?
The IRS notes that for 2025, Form 1099-DA filing requirements generally apply to U.S. brokers, so taxpayers using foreign brokers may not receive a Form 1099-DA but taxable transactions must still be reported.
References
- IRS Notice 2026-20 (PDF): Extension of temporary relief under § 1.1012-1(j)(3)(ii) – Official PDF
- IRS Newsroom (Jan. 28, 2026): “Reminders for taxpayers about digital assets” – Link
- IRS Instructions for Form 1099-DA (2025) – Link
- IRS: Understanding your Form 1099-DA – Link
