The IRS’s New Rules on Cryptocurrency and NFTs for 2025

March 26, 2025
The IRS’s New Rules on Cryptocurrency and NFTs for 2025

Introduction

As the cryptocurrency and NFT markets continue to grow, the IRS has implemented new tax regulations for 2025 to increase compliance and improve tax reporting on digital assets. These changes affect crypto investors, traders, miners, and NFT creators, introducing stricter reporting rules, expanded taxation on transactions, and updated classification guidelines.

 

Understanding these new IRS rules is essential for individuals and businesses engaged in the digital asset space to avoid penalties and ensure proper tax filing.

1. Mandatory Reporting by Crypto Brokers and Exchanges

  • Starting in 2025, cryptocurrency brokers, including centralized exchanges and some DeFi platforms, must report user transactions to the IRS using Form 1099-DA.
  • This form will include details on gross proceeds from sales, trades, and conversions of digital assets.
  • Investors will receive pre-filled tax forms similar to stock transactions, simplifying the reporting process.

 

2. Updated Classification and Taxation of NFTs

  • The IRS has issued guidance stating that certain NFTs (non-fungible tokens) may be classified as collectibles.
  • Collectibles, such as art, antiques, and rare items, are taxed at a higher long-term capital gains rate of 28% instead of the standard long-term capital gains rates (0%, 15%, or 20%).
  • NFTs representing real-world assets (such as property deeds or securities) may be taxed differently depending on their underlying value.

 

3. Capital Gains Tax on Crypto Transactions

  • Short-Term Capital Gains (held ≤1 year): Taxed as ordinary income, ranging from 10% to 37%.
  • Long-Term Capital Gains (held >1 year): Taxed at 0%, 15%, or 20%, depending on income level.
  • Crypto transactions that trigger taxable events include:
    • Selling crypto for fiat currency (USD, EUR, etc.).
    • Trading one cryptocurrency for another.
    • Using crypto to purchase goods or services.
    • Earning staking or mining rewards.

 

4. Stricter Enforcement on Unreported Crypto Income

  • The IRS now requires taxpayers to answer a direct question on their Form 1040 regarding digital asset transactions.
  • Failure to report taxable crypto transactions may result in penalties, audits, and additional tax liability.
  • The agency has expanded its use of blockchain analytics tools to track unreported crypto activity.

 

5. Treatment of Staking and Mining Rewards

  • The IRS has clarified that staking and mining rewards are taxable as income at the time they are received.
  • If held and later sold, any increase in value is subject to capital gains tax.
  • Miners and validators must report fair market value of coins earned as income, similar to self-employment earnings.

 

6. Changes in Crypto Gift and Inheritance Taxation

  • Crypto gifts exceeding $18,000 (2025 limit) must be reported on Form 709 (Gift Tax Return).
  • Inherited crypto assets may receive a step-up in cost basis, reducing taxable capital gains upon sale.
  • The IRS is working on additional estate tax guidance for crypto holdings.

 

7. Tax Implications for DeFi Transactions

  • The IRS has expanded taxable event definitions to include:
    • Lending crypto on DeFi platforms where interest or rewards are earned.
    • Liquidity pool transactions where tokens are deposited and exchanged.
    • Borrowing crypto where the collateral is liquidated.

 

8. Foreign Reporting Requirements for Crypto Holdings

  • U.S. taxpayers with foreign crypto accounts or holdings may be required to file:
    • FBAR (Foreign Bank Account Report) if holdings exceed $10,000.
    • Form 8938 (FATCA reporting) for assets exceeding specific thresholds.
    •  

Conclusion

The IRS’s new cryptocurrency and NFT rules for 2025 introduce stricter reporting, clearer tax classifications, and increased enforcement. Crypto investors, traders, and NFT holders must ensure proper tax reporting to remain compliant and avoid penalties. 

 

Tax Partners can assist individuals and businesses in navigating these new IRS regulations, optimizing tax strategies, and ensuring full compliance with digital asset tax laws.

 

This article is written for educational purposes.

 

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

 

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

 

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