2025 Crypto Tax Guide for Expats: Form 1099-DA & New IRS Rules

Digital Nomads & Crypto: Navigating the 2025 IRS “Crackdown”

For many expats and digital nomads, cryptocurrency is more than an investment—it’s a tool for cross-border payments and financial freedom. However, the “wild west” era of crypto tax is officially over.

In 2025, the IRS launched its most aggressive data-matching program to date. If you hold digital assets while living abroad, here is what you need to know for your 2026 filing.

1. The Arrival of Form 1099-DA

Beginning January 1, 2025, crypto brokers (including many international exchanges that serve U.S. persons) are required to report your sales and exchanges directly to the IRS using the new Form 1099-DA.

• The Red Flag: If the IRS receives a 1099-DA showing $50,000 in sales but your tax return shows $0, an audit is almost guaranteed.
• The Expat Problem: Many foreign exchanges may not issue these forms correctly, leaving the burden of “Basis Tracking” entirely on you.

2. No More “Universal” Basis (Wallet-by-Wallet Rules)

The biggest technical change for 2025 is the Wallet-by-Wallet method. Previously, many taxpayers would “cherry-pick” their highest-cost tokens from any wallet to minimize gains (HIFO).

• The New Rule: You must now track the cost basis of a token within the specific wallet or account it is being sold from.
• Starting 2026: The IRS has signaled that FIFO (First-In, First-Out) will become the mandatory default unless specific identification is used correctly at the time of the trade.

3. Moving Crypto Across Borders

If you transfer Bitcoin from a U.S. exchange (like Coinbase) to a hardware wallet while living in India or Dubai, the transfer itself is not taxable. However:

• Gas Fees: Paying for transaction fees in crypto is considered a “disposition” and triggers a small capital gain or loss.
• Stablecoins: Using USDT or USDC to pay rent or local expenses is also a taxable event. You must calculate the gain/loss relative to the USD value at the time of the transaction.

4. FBAR & FATCA: Does Crypto Count?

This remains one of the most debated topics in 2025.

• FBAR: Currently, the FinCEN 114 instructions do not explicitly require reporting of crypto held in a “private” hardware wallet. However, if your crypto is held on a Foreign Exchange (e.g., a non-U.S. platform), many experts (including KKCA) recommend “protective” FBAR reporting to avoid the $10,000 penalty.
• Form 8938: The IRS has proposed regulations that would include digital assets in the definition of “Specified Foreign Financial Assets.”

5. Summary: Your 2026 Crypto Checklist

To ensure your KKCA consultant can defend your return, you must maintain:

1. Transaction Logs: Exported CSVs from every exchange you used in 2025.
2. Wallet Addresses: Documentation of transfers between your own wallets.
3. Fair Market Value (FMV): The USD value of any crypto received as income or for services at the exact time of receipt.

The KKCA Strategic Advantage

We bridge the gap between “Crypto Tech” and “Tax Law.” Our team uses advanced reconciliation software to:

• Audit your 1099-DAs: Ensuring the broker’s reported basis matches your actual records.
• Manage Cross-Border Transfers: Properly accounting for the “exit” and “entry” of assets as you move between countries.
• Income Recharacterization: Distinguishing between capital gains, staking rewards (ordinary income), and airdrops.

Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.

Disclaimer

This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.