Two people sell the same coin at the same exchange in 2026. One gets a Form 1099-DA showing proceeds and basis. The other gets proceeds and a blank where basis should be. Same coin, same exchange, different paperwork.
The difference is a definition: covered security. Under the broker regulations, only covered securities get basis reporting. Understanding which of your crypto is covered tells you which numbers you can rely on the broker for and which numbers are entirely up to you.
Digital assets are specified securities
Treas. Reg. 1.6045-1(a)(14) lists specified securities for broker reporting, and it includes any digital asset. Rev. Proc. 2024-28 explains the history: the Infrastructure Investment and Jobs Act expanded the definition of specified security to include digital assets, with an applicable date of January 1, 2023. A specified security can be covered or noncovered. Paragraph (a)(16) defines a noncovered security as any specified security that is not a covered security.
When crypto is covered
Paragraph (a)(15)(i)(J) makes a digital asset a covered security when it is acquired in a customer's account by a broker providing custodial services for it on or after January 1, 2026, in exchange for cash, stored-value cards, different digital assets, or other property or services.
In plain terms: if your exchange buys the coin for you, in your account there, on or after January 1, 2026, it is covered. When you later sell it from that account, the broker must report basis, the purchase date and the short-term or long-term character, under paragraph (d)(2)(i)(D).
Paragraph (a)(15)(i)(G) adds a second path: a specified security transferred to an account is covered if the receiving broker gets a transfer statement under Treas. Reg. 1.6045A-1 reporting it as covered.
When crypto is noncovered
- Crypto acquired before January 1, 2026, even if bought at the same exchange that later sells it.
- Crypto you transfer into an exchange from a self-custody wallet. The exchange did not acquire it for you, and no broker sends a transfer statement for coins arriving from your own wallet.
- Crypto you received as income outside the account, such as rewards or payments for work, and then moved in.
For transferred-in units, the regulation requires the broker to report the date of the transfer in and the number of units transferred when the units are sold. That data point tells the IRS the broker does not know your real acquisition date.
Why the broker can still get the order wrong
Brokers also follow an ordering rule when you do not identify which units you sold. Under 1.6045-1(d)(2)(ii)(B), if you do not make an adequate identification and the broker does not have adequate transfer-in date records or customer-provided acquisition information, the broker must first report the sale of units it did not acquire for you. Only after those are exhausted does it apply first in, first out to the units it did acquire.
Your tax result is governed by Treas. Reg. 1.1012-1(j), not by the broker's reporting rule. During the relief period through December 31, 2026, Notice 2026-20 lets you identify units on your own books, and says those identifications control even if the broker's report does not match. Expect mismatches and be ready to explain them. See specific identification and standing orders.
How noncovered sales are reported on your return
When a Form 1099-DA does not show basis, you supply it. On the 2025 Form 8949, that is box H for short-term or box K for long-term. You enter your correct basis in column (e) from your own records.
That basis has to be provable. Rev. Proc. 2024-28 reminds taxpayers that basis must be substantiated under section 6001. If the coin came from your own wallet, your proof is the purchase record from wherever you originally bought it, plus the trail of transfers that brought it to the exchange. See crypto record-keeping requirements.
A worked example
In 2022 you bought 2 units of a coin on Exchange A for $30,000 total and later moved them to your hardware wallet. In March 2026 you moved both units to Exchange B, and in the same month bought 1 more unit on Exchange B for $70,000. In November 2026 you sell 2 units on Exchange B for $140,000.
- The unit bought on Exchange B in March 2026 is covered. If it is one of the units sold, Exchange B reports its $70,000 basis.
- The 2 units transferred in are noncovered. Exchange B reports proceeds, the transfer-in date and units, and no basis.
- Which 2 units you sold depends on your identification. Without one, the broker's reporting rule and the tax rule may not even point to the same units.
If you identified the 2022 units in your records before the sale, your basis is $30,000 and your gain is $110,000, long-term. If you identified one 2022 unit and the 2026 unit, your basis is $85,000 ($15,000 plus $70,000), producing a $55,000 gain, all of it long-term on the 2022 unit, while the 2026 unit breaks even. Same sale, very different returns, and the form alone will not tell the IRS which one is right. Your records will.
Stablecoins and NFTs reported in aggregate
The basis reporting rule in Treas. Reg. 1.6045-1(d)(2)(i)(D) does not apply to sales of qualifying stablecoins or specified nonfungible tokens that a broker reports under the optional aggregate method in paragraph (d)(10). Even if those assets were acquired in your account after 2025, an aggregate report will not show lot-level basis. For stablecoins the basis question is usually small, because the price barely moves. For NFTs it can be large. Either way, the basis is on you. See stablecoin tax treatment and NFT collector tax obligations.
Covered does not mean final
Even a covered sale with broker-reported basis is only correct if the broker's assumptions match yours. If you gave the broker a standing order, check that the reported lots follow it. If you identified lots in your own books under the Notice 2026-20 relief, expect the broker's basis to differ and plan to adjust. The broker's number is evidence, not a verdict.
Why this matters more each year
In the first years of Form 1099-DA, most crypto that people sell will be noncovered, because most of it was bought before 2026 or moved between platforms. Over time the mix shifts. Units bought in your account in 2026 and later will increasingly carry broker-reported basis.
That shift helps, but it does not remove your responsibility. Covered basis can still be wrong if you identified different lots than the broker assumed, if transaction costs were handled differently, or if the broker's records are incomplete. A blank basis field and a filled-in one both deserve a check against your ledger.
Questions to ask each exchange
- Does the platform let me choose lots or set a standing order, and what identifiers does it accept?
- Does it accept customer-provided acquisition information for units I transfer in?
- How does it treat fees on crypto-for-crypto trades?
- Will it issue corrected forms if a transaction is reclassified?
Write down the answers and the date you got them. They explain your reporting choices later.
Practical steps
- Keep a transfer log for every move into an exchange: date, units, sending address, transaction hash, and the original purchase records for those units.
- Consider buying and holding long-term positions in the account where they will eventually be sold, if covered reporting matters to you.
- Record standing orders for each account before you sell.
- Reconcile every Form 1099-DA line against your lot ledger before you file. See Form 1099-DA explained.
If you hold a large position you expect to sell in pieces over several years, think about where it sits. Units bought and held in one account after 2025 will tend to arrive at filing time with basis already reported. Units scattered across platforms and wallets will not, and every move adds a record you need to keep.
Covered status is a reporting label, not a tax rule. Noncovered does not mean untaxed, and covered does not mean correct. It only tells you whose numbers the IRS is starting from.
Frequently asked questions
What makes crypto a covered security?
Under Treas. Reg. 1.6045-1(a)(15)(i)(J), a digital asset is covered if a custodial broker acquires it in your account on or after January 1, 2026, for cash, stored-value cards, different digital assets, or other property or services. A transfer accompanied by a transfer statement reporting it as covered can also qualify.
Is crypto I move onto an exchange covered?
Generally no. The broker did not acquire it for you, so the broker reports proceeds and the transfer-in date and units, but not basis. You supply basis from your own records.
Where do I report noncovered crypto sales?
On the 2025 Form 8949, box H for short-term and box K for long-term sales reported on Form 1099-DA without basis. Enter your correct basis in column (e).
Does noncovered mean I owe tax on the full proceeds?
No. You owe tax on gain, which is proceeds minus your basis. Noncovered only means the broker does not report basis, so you must report and support it yourself.
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