On October 6, 2025, Bitcoin touched $126,198 — the highest price in its 17-year history. Five months later, it is trading below $65,000. That is a 49% drawdown, accelerated by President Trump's announcement of a 15% global tariff on February 21, 2026, just two days after the Supreme Court struck down his earlier tariff authority.
Meanwhile, something else landed in your inbox for the very first time: Form 1099-DA. This is Year One. Every trade you executed on Coinbase, Kraken, Gemini, or Robinhood in 2025 has been reported directly to the IRS — gross proceeds, transaction dates, and asset descriptions. The IRS matching computer is live. Your return is due April 15, 2026 — roughly 50 days from today.
Here is the problem: your 1099-DA almost certainly shows $0 cost basis for transferred assets. That means the IRS sees your entire sale as pure profit. If you do not fix this before you file, you will either overpay by thousands of dollars or trigger a CP2000 underreporter notice.
This guide walks you through everything the IRS expects you to do — and every legal strategy available to you — before that deadline hits.
Jump to the 7-Step Action Plan ↓Quick Facts: The 2026 Crypto Tax Filing Landscape
| Bitcoin All-Time High | $126,198 (Oct 6, 2025) — source |
|---|---|
| Current Price (Feb 24, 2026) | ~$64,000 — down 49% from ATH |
| Crash Catalyst | Trump 15% global tariff (Feb 21, 2026) — CNBC |
| New Form This Year | Form 1099-DA — Year One of broker reporting to IRS |
| Cost Basis on 1099-DA? | NOT required for 2025 transactions; begins with 2026 sales |
| Filing Deadline | April 15, 2026 (extension: October 15, 2026) |
| Americans Holding Crypto | ~65 million (28% of adults) — Frazier & Deeter |
| Wash Sale Rule for Crypto? | Does NOT apply (crypto = property, not security) |
| Capital Loss Deduction Cap | $3,000/year against ordinary income (unlimited carryforward) |
| Standard Deduction 2026 | $16,100 single / $32,200 MFJ (OBBBA-adjusted) — IRS |
What Just Happened: From $126K to $64K in Five Months
Bitcoin's parabolic run through 2025 was fueled by spot ETF inflows, the April 2024 halving cycle, and a crypto-friendly White House under President Trump. The price ripped from $67,000 in January 2025 to a record $126,198 on October 6, 2025, according to Investopedia.
Then the macro environment turned hostile. A series of trade-policy shocks began unwinding the rally. On February 21, 2026, the Supreme Court ruled 6-3 that Trump's earlier emergency tariffs exceeded his constitutional authority, per Bitcoin Magazine. Bitcoin briefly spiked on the news. Hours later, Trump signed a new executive order invoking a 1974 statute to impose a 15% global tariff for up to 150 days, as reported by CoinDesk. Bitcoin immediately reversed, falling 5% below $65,000 over the weekend.
The result: a 49% peak-to-trough drawdown. Prediction markets on Polymarket show a 61% probability that Bitcoin will fall below $50,000 at some point in 2026, per MEXC research. Barron's reports BTC is already down 25% since the start of 2026 alone.
For tax purposes, this crash creates a massive window of opportunity — and a minefield of compliance risk. Every sale you made in 2025 at prices between $67K and $126K is now locked into your 1099-DA. If you are sitting on unrealized losses in 2026, you can harvest them right now — and because the wash sale rule does not apply to crypto, you can re-buy immediately.
Your 1099-DA Arrived. Now What?
Form 1099-DA is the crypto equivalent of the 1099-B that stock brokers have issued for decades. For the first time, the IRS receives a copy of every digital asset sale you executed through a U.S.-based exchange in 2025. The form was due to taxpayers by February 17, 2026, per IRS.gov.
The Basis Gap Problem
For tax year 2025, brokers are required to report gross proceeds only — not cost basis. Cost basis reporting is mandatory starting with transactions executed on or after January 1, 2026, per the IRS final regulations. This means your 2025 Form 1099-DA will show how much you sold for — but not how much you originally paid.
The risk is enormous. If you transferred 2 BTC from a Ledger hardware wallet to Coinbase and sold for $200,000, Coinbase reports $200,000 in gross proceeds to the IRS with no cost basis attached. The IRS automated matching program treats missing basis as $0 basis — meaning it sees a $200,000 capital gain. If your actual cost basis was $150,000, you should owe tax on only $50,000. But the IRS does not know that unless you tell them on Form 8949.
The Reconciliation Trap
The IRS matching system compares your Form 1040, Schedule D, and Form 8949 against every 1099-DA filed by brokers. A mismatch triggers a CP2000 notice — an automated letter proposing additional tax, penalties, and interest. According to a CPA's analysis on Reddit, the most common mistake is failing to include transactions from a 1099-DA on your return, or reporting different gross proceeds than what the broker filed.
Delayed Forms Add Pressure
Major exchanges including Coinbase and Kraken have reported significant delays in issuing 1099-DA forms, with some taxpayers not receiving their forms until March 18 or later, per Kugelman Law. If your form arrives mid-March, you have less than 30 days to reconcile potentially hundreds of transactions before April 15.
Your 7-Step Crypto Tax Action Plan Before April 15
Gather Every 1099-DA From Every Exchange
Log into each platform where you traded in 2025: Coinbase, Kraken, Gemini, Robinhood, Binance.US, Crypto.com. Download every 1099-DA issued to you. If you used a decentralized exchange (Uniswap, dYdX), those platforms do not issue 1099-DAs — you are solely responsible for reporting those transactions. Cross-reference your exchange transaction histories with your 1099-DA forms to ensure nothing is missing.
Check for Missing or Delayed Forms
Coinbase and Kraken have notified some users that their 1099-DA may arrive as late as March 18, 2026. If your form has not arrived, do not wait — log into your account and download your full transaction history as a CSV file. This data is your backup for reconstructing the information manually or through crypto tax software.
Reconstruct Cost Basis for Transferred Assets
This is the most critical step. For any crypto that was transferred from a personal wallet, another exchange, or a DeFi protocol before being sold, you must establish the original purchase date and price. Dig up old exchange confirmations, email receipts, blockchain explorer records (Etherscan, Blockchain.com), and wallet transaction logs. If you cannot find the original purchase records, use the fair market value on the date you received the asset as your cost basis, per Koinly's cost basis guide.
Choose Your Accounting Method — And Stick With It
You must select an accounting method for identifying which lots are sold: FIFO (First In, First Out) is the IRS default, LIFO (Last In, First Out) sells your newest purchases first, and HIFO (Highest In, First Out) sells your most expensive lots first, minimizing taxable gain. Example: If you bought 1 BTC at $30K, 1 BTC at $60K, and 1 BTC at $100K, then sold 1 BTC for $65K — FIFO shows a $35K gain, LIFO shows a $5K gain, and HIFO shows a $35K loss. The method you choose must be applied consistently. Note that beginning with 2026 transactions, brokers will default to FIFO unless you provide specific lot identification instructions.
Identify Tax-Loss Harvesting Opportunities (No Wash Sale Rule)
With Bitcoin down 49% from its ATH, you may be holding significant unrealized losses in your 2026 portfolio. Because the wash sale rule under IRC §1091 does not apply to cryptocurrency — crypto is classified as property, not a security — you can sell at a loss and immediately re-purchase the same asset. This crystallizes the loss for tax purposes without changing your market exposure. Capital losses offset capital gains dollar-for-dollar, and excess losses offset up to $3,000 of ordinary income per year with unlimited carryforward. See our Tax-Loss Harvesting Guide for full strategies.
Run Form 8949 + Schedule D Through Crypto Tax Software
Import your exchange CSVs and wallet addresses into CoinTracker, Koinly, or CoinLedger. These platforms auto-match transfers across wallets, reconstruct cost basis, and generate IRS-ready Form 8949 and Schedule D. Double-check the output against your 1099-DA to ensure gross proceeds match. Any discrepancy between your 8949 and the 1099-DA the IRS receives will be flagged by the automated matching program.
If Not Ready → File Form 4868 by April 15
If your 1099-DA is delayed, your basis is unresolved, or your transaction volume is simply too high to reconcile in time, file Form 4868 by April 15, 2026 for an automatic six-month extension to October 15, 2026. You can file electronically through IRS Free File at no cost. Critical: the extension applies to filing only — it does not extend the payment deadline. Estimate your tax liability and pay it by April 15 to avoid the 0.5% per month late-payment penalty.
The Wash Sale Loophole: Still Open in 2026 (Maybe Not for Long)
The wash sale rule, codified in IRC §1091, prevents investors from claiming a tax loss if they buy a "substantially identical" security within 30 days before or after the sale. It applies to stocks, bonds, and other securities. It does not apply to cryptocurrency.
This is not a loophole in the casual sense — it is the plain text of the law. The IRS classifies crypto as property under Notice 2014-21, and property is not subject to wash sale restrictions. TurboTax confirmed this in their January 2026 guidance. CoinLedger, Kiplinger, and TokenTax all concur as of February 2026.
In practice, this means you can sell 1 BTC at a $30,000 loss on Monday, re-buy 1 BTC on Tuesday, and claim the $30,000 loss on your 2026 return. Your market position is unchanged; your tax bill drops by thousands. With stocks, this move would disallow the loss entirely.
Why This May Be the Last Year
Forbes reported in December 2025 that "2025 may be the last time taxpayers can take advantage" of the crypto wash sale gap. Multiple legislative proposals — including provisions discussed in the White House's digital asset recommendations — would extend wash sale rules to cover digital assets. The Cadwalader 2026 Crypto Tax Forecast specifically flags this as a high-probability legislative change. A discussion draft already proposes applying wash sale rules to cryptocurrency starting as early as 2027.
Capital Losses: How the Math Actually Works
The mechanics of capital loss deductions confuse many crypto investors, particularly the $3,000 annual limit. Here is exactly how the system works under current law.
When you sell crypto at a loss, the loss is classified as either short-term (held 1 year or less) or long-term (held more than 1 year). Short-term losses first offset short-term gains, which are taxed at your ordinary income rate of 10% to 37%. Long-term losses first offset long-term gains, which are taxed at preferential rates of 0%, 15%, or 20% depending on income. After netting within each category, any remaining net loss crosses over to offset the other category.
If your total capital losses exceed your total capital gains for the year, the excess loss offsets up to $3,000 of ordinary income ($1,500 if married filing separately). Any remaining loss carries forward indefinitely to future tax years — there is no expiration.
Example: 2025 Filing Scenario
| Transaction | Type | Gain / Loss |
|---|---|---|
| Sold ETH bought 3 months ago | Short-term | +$8,000 gain |
| Sold BTC bought 2 months ago | Short-term | -$22,000 loss |
| Sold SOL bought 14 months ago | Long-term | +$5,000 gain |
| Net Short-Term | -$14,000 | |
| Net Long-Term | +$5,000 | |
| Overall Net Loss | -$9,000 | |
| Deduction against ordinary income (2025) | -$3,000 | |
| Carryforward to 2026 | -$6,000 |
In this scenario, the investor pays zero capital gains tax and reduces their ordinary income by $3,000. The remaining $6,000 loss carries into 2026. Importantly, capital losses from crypto can offset stock gains — and vice versa. They are all reported on the same Schedule D.
Short-Term vs Long-Term Rates for 2025
| Holding Period | Tax Rate | Applies To |
|---|---|---|
| ≤ 1 year (short-term) | 10% – 37% (ordinary income rates) | Day trades, swing trades, DeFi flips |
| > 1 year (long-term) | 0% / 15% / 20% | Long-term HODL positions sold |
| Net Investment Income Tax | +3.8% | AGI above $200K single / $250K MFJ |
For high-income taxpayers, the effective maximum rate on short-term crypto gains is 40.8% (37% + 3.8% NIIT). This is why harvesting losses against short-term gains produces the greatest tax savings — every dollar of short-term loss offsets income that would otherwise be taxed at up to 40.8%.
Compare: Best Crypto Tax Software →Can't File by April 15? Your Form 4868 Extension Guide
If your 1099-DA has not arrived, your cost basis is a mess, or you simply need more time, filing Form 4868 is the single most important protective action you can take. Here is what it does and does not do.
What Form 4868 Does
Filing Form 4868 by April 15, 2026 gives you an automatic six-month extension to file your Form 1040, moving the deadline to October 15, 2026. You do not need a reason. You do not need IRS approval. The extension is automatic upon submission. You can file electronically through IRS Free File, through your tax software, or by mailing the paper form.
What Form 4868 Does NOT Do
It does not extend the payment deadline. You must estimate your total tax liability for 2025 and pay that amount by April 15. If you owe taxes and do not pay by the original deadline, the IRS charges a failure-to-pay penalty of 0.5% of the unpaid amount per month, plus interest at the federal short-term rate plus 3%. Per TurboTax, the failure-to-file penalty (5% per month, max 25%) is ten times worse than the failure-to-pay penalty — so even if you cannot pay in full, always file the extension.
Penalty Comparison
| Scenario | Penalty | Monthly Rate | Maximum |
|---|---|---|---|
| Filed extension + paid on time | None | 0% | $0 |
| Filed extension + paid late | Failure-to-pay | 0.5%/month | 25% |
| No extension + filed late + paid late | Both penalties | 5.5%/month combined | 47.5% |
Crypto Tax Software Comparison: 1099-DA Reconciliation Features
Given the complexity of the first 1099-DA filing season, crypto tax software is no longer optional for anyone with more than a handful of transactions. The three major platforms — CoinTracker, Koinly, and CoinLedger — all support 1099-DA reconciliation, but their capabilities differ in important ways.
| Feature | CoinTracker | Koinly | CoinLedger |
|---|---|---|---|
| 1099-DA Import | Yes (direct Coinbase sync) | Yes (CSV upload) | Yes (CSV upload) |
| Cross-Platform Basis Matching | Automatic transfer detection | Automatic transfer detection | Manual tagging |
| Accounting Methods | FIFO, LIFO, HIFO, ACB | FIFO, LIFO, HIFO, ACB | FIFO, LIFO, HIFO |
| Form 8949 Generation | Yes | Yes | Yes |
| Schedule D Generation | Yes | Yes | Yes |
| TurboTax Integration | Yes | Yes | Yes |
| DeFi / DEX Support | Extensive | Extensive | Good |
| NFT Support | Yes | Yes | Yes |
| Tax-Loss Harvesting Dashboard | Real-time | Yes (manual refresh) | Basic |
| Pricing (up to 1,000 txns) | $59/year | $49/year | $49/year |
All three platforms generate IRS-ready Form 8949, but none of them generate Form 4684 (for theft losses) or Form 4797 (for abandonment). If you need to report stolen or worthless crypto, see our Bybit Hack 1-Year Tax Guide.
For the 2026 filing season specifically, the most important feature is cross-platform basis matching. If you transferred BTC from Kraken to Coinbase before selling, CoinTracker and Koinly can automatically detect the transfer and carry over the original cost basis. CoinLedger requires manual tagging but is $10 cheaper per year.
Full Review: Best Crypto Tax Software →Frequently Asked Questions
What is Form 1099-DA and why did I receive one in 2026?
Why is cost basis missing on my 1099-DA?
Does the wash sale rule apply to crypto in 2026?
How much crypto loss can I deduct per year?
What happens if I miss the April 15, 2026 deadline?
Should I use FIFO, LIFO, or HIFO for my crypto cost basis?
Can crypto losses offset my stock gains?
What is a CP2000 notice and how does it relate to Form 1099-DA?
How do I file a tax extension for crypto using Form 4868?
What is the standard deduction for 2026 and does it affect my crypto losses?
Related Guides
Continue building your crypto tax knowledge with these in-depth resources from Legal Money Talk:
Bybit Hack 1-Year Later: Deduct Stolen Crypto → Crypto Tax Havens vs Traps: 0% to 55% → 50% of Crypto Holders Fear IRS Penalties → Best Crypto Tax Software 2025 → IRS Form 8949 Crypto Guide → Crypto Tax-Loss Harvesting Guide → Per-Wallet Cost Basis Tracking → IRS CP2000 Crypto Notice Guide → OECD CARF Overview →
