Your crypto exchange now reports your sales directly to the IRS on Form 1099-DA. For a lot of investors, that form will make their gains look far bigger than they really are.

The reason is simple: when you move coins into an exchange from somewhere else, your cost basis doesn't come with them. The exchange reports what you sold the coins for, but not what you paid. If your return just copies the form, you can end up paying tax on money you never made.

Here's how the trap works, how to avoid it, and the crypto tax myths I still see every filing season.

The 1099-DA trap, in two examples

Example 1: bitcoin you moved to an exchange

In 2021 you bought 0.5 BTC for $20,000 on one exchange and later transferred it to Coinbase. In 2026 you sell it on Coinbase for $50,000.

  • What your 1099-DA shows: $50,000 of proceeds and no cost basis, because Coinbase never saw your purchase.
  • What you actually owe tax on: a $30,000 long-term gain.
  • If you copy the form: it can look like a $50,000 gain, which is $20,000 of income you never had.

Example 2: stablecoins that are "just dollars"

You buy 10,000 USDC for $10,000 on another platform, send it to Coinbase, and sell it for $10,000.

  • Your real gain: zero.
  • The problem: the IRS treats stablecoins as property, not cash. USDC you transfer in arrives with no cost basis, and Coinbase has said it won't assume $1 per USDC for coins acquired elsewhere. Without your records, that sale can look like $10,000 of gain.

The fix in both cases is the same: report the correct cost basis yourself, and keep the records that prove it.

Part 1: Your 1099-DA survival guide

Form 1099-DA started with 2025 sales. For 2025, brokers reported gross proceeds. For assets you acquire on or after January 1, 2026 and keep in the same account, they also report cost basis. Everything else (coins bought earlier, or transferred in from another exchange or wallet) is generally "noncovered," and the basis may be blank. Here's how to handle it:

  1. Download everything before you file. Pull the full transaction history (CSV) from every exchange and wallet you used, not just the ones that sent a 1099-DA. Your cost basis lives in those records.
  2. Match every 1099-DA line to your records. Look for sales with blank or $0 basis, and for coins you transferred in. Those are where overstated gains hide.
  3. Report every sale, with the right basis. Each sale on a 1099-DA belongs on Form 8949. Digital assets now have their own boxes: G, H and I for short-term sales and J, K and L for long-term, depending on whether the 1099-DA reported basis to the IRS. Where the form's basis is missing or wrong, you report the correct basis and keep the support.
  4. Don't double-count your own transfers. Moving coins between accounts you own isn't a sale. Make sure your software doesn't treat a transfer out of one exchange and into another as a sale and a purchase.
  5. Choose your lots on purpose. If you don't identify which units you're selling, the default is first-in, first-out (FIFO), which can produce a bigger gain. Under IRS Notice 2026-20, through December 31, 2026, you can identify the specific units you're selling in your own records, by the time of the sale. After that, for coins held at an exchange, you'll generally need to give the exchange your identification or a standing order. Set your preferred method with your exchange before 2027.
  6. Track stablecoins too. Brokers can report qualifying stablecoin sales in aggregate or, for small totals, not at all. That doesn't make them disappear from your return; it means your records matter even more.
  7. Watch for corrected forms. Corrected 1099-DAs are common in a new reporting system. If you've already filed, compare the corrected form against your return.
  8. Keep the support. Keep transaction histories, wallet addresses and purchase confirmations for at least as long as the return can be examined, and longer for coins you still hold, since their basis matters when you eventually sell.

Part 2: The Coinbase USDC basis fix

Many people expect Coinbase to treat USDC as $1 automatically. Here's how it actually works:

  • USDC you buy on Coinbase with dollars: Coinbase has the purchase record, so its tax tools can track the cost basis (roughly $1 per USDC).
  • USDC you transfer in from elsewhere does not. Coinbase has said that under the 1099-DA rules it won't assume a $1 basis for USDC acquired somewhere else, so those units show as missing cost basis.

To fix it:

  1. Open the Taxes section of your Coinbase account (in the app or on the website). That's where your tax forms live, along with items that need your attention, including transfers with missing cost basis.
  2. Review every transfer in with missing basis. For each one, find the original purchase: where you bought the USDC, when, and what you paid.
  3. Fill in the basis. Coinbase has offered a paid CoinTracker integration that can fill in missing cost basis using your other accounts. You can also use your own crypto tax software or a spreadsheet.
  4. Report the correct basis on your return. Whatever the 1099-DA shows, your Form 8949 should show your actual basis, supported by your records. For USDC you bought at $1 and sold at $1, that means little or no gain.
  5. Going forward: if you need stablecoins on Coinbase, buying them on Coinbase with dollars keeps the basis on record automatically, instead of transferring them in.

Coinbase's menus change from time to time, so the exact labels may differ. The principle doesn't: the 1099-DA is a starting point, not your tax return.

Part 3: Six crypto tax myths that cost people money

Myth #1: "Buying something with crypto isn't taxable."

False. Spending crypto is a sale of that crypto. Buy $300 of bitcoin on January 1, 2024, spend it on January 2, 2025 when it's worth $400, and you have a $100 long-term capital gain, because you held it for more than one year. Gains on crypto held one year or less are short-term and taxed at ordinary rates; long-term gains are taxed at 0%, 15% or 20%, plus the 3.8% net investment income tax for higher earners.

Myth #2: "Trading one coin for another isn't taxable until I cash out."

False. Swapping one coin for another, including for a stablecoin, is a taxable sale. Like-kind exchange treatment has been limited to real estate since 2018.

Myth #3: "I just report my net change in holdings for the year."

False. Every disposition is its own taxable event, with its own basis and holding period.

Myth #4: "Staking rewards and airdrops aren't income until I sell."

False. Staking rewards are ordinary income at their fair market value when you gain control of them (Revenue Ruling 2023-14). Airdrops and hard-fork coins are income when received and under your control (Revenue Ruling 2019-24). Mining is ordinary income, and self-employment income if you mine as a business. The amount you report as income becomes your basis.

Myth #5: "Moving coins between my own wallets is taxable."

False. Transfers between wallets or accounts you own aren't sales. Two cautions: your records have to carry the cost basis across, and network fees paid in crypto can be treated as small dispositions. Since January 1, 2025, cost basis also has to be tracked wallet by wallet, not pooled across everything you own; Revenue Procedure 2024-28 provided a one-time safe harbor for assigning existing basis to each wallet.

Myth #6: "If I didn't get a form, the IRS doesn't know."

False. Custodial exchanges now file 1099-DAs, and Form 1040 asks every filer whether they received, sold, exchanged or otherwise disposed of a digital asset. Self-custody and DeFi activity generally isn't reported on 1099-DA (Congress repealed the DeFi broker rule in 2025), but it's still taxable and still yours to report.

A few more things worth knowing

  • Losses: Capital losses offset capital gains, plus up to $3,000 a year of other income ($1,500 if married filing separately), with the rest carried forward.
  • Wash sales: As of this writing, the wash-sale rule applies to stocks and securities, not crypto. A bill to extend it to digital assets cleared the House Ways and Means Committee in September 2026 but has not become law.
  • New Jersey and New York have no lower rate for long-term capital gains, so crypto gains are taxed at your regular state rates.

The bottom line

The 1099-DA is the IRS's new window into your crypto activity, and it's incomplete by design. The investors who come out ahead are the ones who reconcile it against their own records before filing, not after a notice arrives.

See how we handle cost basis, 1099-DA reconciliation and IRS crypto letters on our crypto tax services page.