IRS Sets 2025 Crypto Broker Tax Rules, Delays DeFi and Wallet Regulations

• The U.S Department of the Treasury and the IRS introduce new crypto tax regulations slated for 2025, reserving the final say on DeFi and unhosted wallets.
• This regulation primarily aims to align the crypto reporting structure with traditional brokers, impacting millions within the crypto ecosystem.
• Highlighting the exemption clauses, ordinary trades for small quantities of NFTs and stablecoin transactions under specific thresholds remain unaffected.

Explore the newly released crypto tax guidelines for 2025 by the U.S. Treasury and the IRS, impacting millions and setting new standards for crypto brokers and platforms.

IRS’s New Reporting Requirements for Crypto Brokers

The IRS has specified that cryptocurrency brokers, including trading platforms, hosted wallet services, and digital asset kiosks, must report customer transactions and gains starting in 2025. This new directive integrates these entities into the broader financial reporting system mandated for traditional brokers.

These brokers will be required to file 1099 forms and provide cost basis data from 2026 onwards, aligning crypto reporting with mainstream investment practices. This move, while expanding regulatory oversight, also seeks to standardize the reporting landscape across different financial platforms.

Delayed Regulations on DeFi and Unhosted Wallets

The IRS has deferred its decisions regarding decentralized finance (DeFi) protocols and unhosted wallet providers. The agency continues to assess public feedback and the complexities involved in regulating these sectors. Currently, non-custodial entities are not precluded from being deemed as brokers, with final guidelines anticipated later this year.

This delay offers temporary relief to DeFi ecosystems and unhosted wallet operators, providing more time for the industry and regulators to find common ground.

Stablecoins and NFTs Under the New Rules

Stablecoin transactions and high-value non-fungible token (NFT) sales also fall under the new reporting requirements. Transactions involving stablecoins exceeding $10,000 and NFT gains surpassing $600 annually must be disclosed to the IRS. However, everyday transactions below these thresholds are exempt, aiming to ease compliance burdens while capturing significant market activities.

For NFT transactions, taxpayers earning over $600 per annum must report their total earnings, including taxpayer identification information, the number of NFTs sold, and the profits. This measure ensures comprehensive tax compliance on high-value digital assets.

Industry Feedback and Compliance Concerns

The introduction of these tax regulations has sparked significant debate within the crypto community. Industry groups like the Blockchain Association and Digital Chamber have highlighted potential issues of regulatory overreach and the substantial compliance burden placed on entities not traditionally categorized as brokers, such as miners and software developers.

These organizations argue that the requirements might lead to the production of large volumes of paperwork, imposing heavy operational and financial burdens on the affected firms. Despite these concerns, the IRS maintains that it strives to achieve balanced and effective reporting regulations without overwhelming the industry.

Conclusion

The new regulations set forth by the U.S. Treasury and IRS mark a significant shift in the crypto regulatory landscape, aiming for greater transparency and integration with traditional financial systems. Although the delay in DeFi and unhosted wallet regulations grants temporary reprieve, the industry must prepare for comprehensive compliance measures by 2025. As these rules take shape, their impact on market participants and overall crypto ecosystem will become increasingly evident.