Owning digital assets such as cryptocurrencies, NFTs, and stablecoins can feel exciting and full of possibilities. Yet, recent changes in IRS guidance may affect the way you buy, sell, and hold these assets in New York.
Many people who trade or invest in these assets are unsure how the updated tax rules will impact their returns. If you own digital assets and want to make sure you comply with both federal and New York State tax laws, it may be wise to seek advice from a lawyer who understands this growing area of tax law. Our New York tax attorneys at Thorgood Law Firm can explain what the IRS expects and how to plan for these changes. If you need legal counsel, call us for a free initial consultation.
Why Are Digital Assets Treated as Property?
Not long ago, many people saw cryptocurrencies and other digital assets as a new kind of currency. They thought these assets worked like cash. The IRS, however, generally treats digital assets as property. This means that if you sell them for more than you paid, you have a gain, and if you sell them for less, you have a loss. The same rules apply as if you were selling stocks, bonds, or real estate. Understanding this is important because it shapes how you report income and pay taxes on your transactions.
For New York residents, the state generally follows the federal approach. When you buy digital assets and later sell them for a higher price, you create taxable income. If you hold these assets for a short time, you might owe higher taxes on gains. If you hold them for longer than a year, you may qualify for lower rates.
By knowing the difference, you can plan how and when you sell. Our New York tax attorneys at Thorgood Law Firm can help you understand these rules and figure out how best to time your transactions.
What Does the Latest IRS Guidance Say About Reporting?
The IRS recently announced new reporting rules. Starting with transactions in 2025, brokers who help you trade digital assets must send you a Form 1099-DA that reports your activity. This means that by 2026, you should expect to receive these forms from exchanges or platforms where you bought or sold digital assets. The IRS hopes these rules will make it harder for people to avoid reporting gains and losses. For you, it means that the IRS will have a record of your trades, making it important to report them accurately.
Some people wonder what counts as a digital asset. The latest IRS guidance keeps the definition broad. Cryptocurrencies are included, but so are NFTs and stablecoins. If you think that only major digital currencies are covered, that may not be true. Smaller tokens and less common assets may also count.
The IRS wants to ensure that if you own or trade any form of digital property, you include it on your tax return. Our New York tax attorneys at Thorgood Law Firm can help you understand which assets count and how to report them so you are not caught by surprise.
What Is Changing for Brokers and Exchanges?
Brokers, such as exchanges and digital asset platforms, will now have more duties. They must report gross proceeds from sales in 2025 and, starting in 2026, report the cost basis of certain digital asset sales. Cost basis is the amount you paid when you acquired the asset.
Reporting cost basis makes it easier for the IRS to see if you owe tax on a gain. Without this data, you might have tried to calculate the gain yourself. Now, the broker will send data to the IRS, and you will need to make sure your records match.
This new system could reduce guesswork for you, but it also puts you on notice. The IRS will have a record of not just what you sold but how much you paid. If your own report does not match theirs, that may trigger questions.
The IRS wants consistency. If you have never kept good records of when and how you acquired your digital assets, now is a good time to start. Keeping track of purchase prices, sale prices, and dates is important. Our New York tax attorneys at Thorgood Law Firm can help you learn what records to keep and how to organize them so that you are ready when these forms start arriving.
Are There Exceptions for Small Transactions?
The IRS recognizes that not every transaction is big. The new rules include certain exemptions for small transactions. For stablecoins, if you do not exceed $10,000 in annual transactions, you may not face the same reporting rules. For some NFTs, if the total annual sales under one customer ID are less than $600, the reporting rules may also be less burdensome. These exceptions aim to keep the rules from becoming too harsh on those who only dip their toes into digital assets.
This does not mean you can ignore your tax duties if you fall under these amounts. Even if your transactions are small, you may still owe tax on gains. Also, if you combine multiple small transactions from different sources and they exceed the limit, you may lose the exemption.
Understanding the fine print matters. Our New York tax attorneys at Thorgood Law Firm can advise you whether these exceptions apply to your case. They can help you figure out if your activity stays below the thresholds and what to do if you cross them.
What About Capital Gains and Losses?
Just like stocks or bonds, digital assets create capital gains or losses when you sell them. If you sell at a profit after holding for more than one year, you pay the lower, long-term capital gains rates. If you sell sooner, the profits are taxed at higher, short-term rates, often the same as your normal income tax rate. If you sell at a loss, you may offset gains or, in some cases, offset a portion of your regular income, subject to certain limits.
Some people try to reduce their tax bill by careful timing of buys and sells. While there can be planning opportunities, you must follow the rules. The IRS may not allow certain tactics that appear to be only for avoiding tax.
It helps to know what methods are allowed to track gains and losses. For instance, you might use First-In-First-Out (FIFO) or specific identification methods. Each method can affect how much gain or loss you report. Our New York tax attorneys at Thorgood Law Firm can guide you in choosing the right accounting method that best fits your strategy and record-keeping habits.
Do You Have to Answer Questions About Digital Assets on Your 1040?
For some time now, the IRS has been asking U.S. taxpayers if they held any virtual currency during the year. The question on Form 1040 aims to draw attention to these assets and remind taxpayers that they must report their digital activity. With the new guidance and reporting rules, it becomes even more important to answer accurately. If you claim you had no digital assets while the IRS has records from an exchange showing otherwise, you might face questions.
Answering this question truthfully is not optional. Even if you only made one small transaction or just held some assets without selling, you must consider how to respond. The IRS uses this question as a starting point to see if you are aware of your duties.
If you are unsure how to answer, our New York tax attorneys at Thorgood Law Firm can help you interpret the question and decide what information to provide. Being honest and clear at this stage may prevent bigger problems later.
Contact Our New York Tax Attorneys at Thorgood Law Firm Today
The IRS’s latest guidance on digital assets means changes are on the horizon for New York taxpayers. With new reporting forms, cost basis rules, and definitions that cover a wide range of digital property, it is more important than ever to stay informed and prepared. Whether you have a single NFT, a basket of various cryptocurrencies, or a business that deals in digital assets, these rules can affect your tax bill and the way you report income and gains.
If you have questions, concerns, or need help understanding what the IRS guidance means for you, consider reaching out for advice. Our New York tax attorneys at Thorgood Law Firm are ready to help.
Our office is located at 100 Park Avenue, 16th Floor, New York, NY 10017. We serve clients in New York and across the country. Call us at (212) 490-0704 or (212) 202-3879.
