Overview

Recent rulings, Treasury guidance, and IRS clarifications over the past few years have tightened and clarified how capital gains must be reported. The biggest practical effects have been in three areas: digital assets (cryptocurrency and similar tokens), sales or conversions of real estate (including primary residences converted to rental), and expanded broker reporting requirements that affect how cost basis and proceeds are documented on Forms 1099‑B and 8949. This article summarizes the changes, gives clear reporting steps, and links to resources you can use to prepare accurate returns.

Why these rulings matter

These rulings matter because they affect whether a taxable event exists, how to calculate gain or loss, and which forms and supporting records you must keep and provide to the IRS. Misreporting (or failing to report) can trigger notices, accuracy-related penalties, and interest. In my practice, small errors in basis reporting—especially when taxpayers use multiple exchanges or custodians—are the most common source of IRS adjustments.

Key categories of recent rulings and guidance

  • Digital assets (virtual currency): The IRS continues to treat virtual currency as property for U.S. federal tax purposes (IRS Notice 2014‑21) and has issued ongoing FAQs and guidance clarifying reporting responsibilities for sales, exchanges, spending of crypto, and income events. See the IRS virtual currency page for current FAQs and forms (irs.gov/virtual-currencies).

  • Broker reporting and cost basis: Congress and the IRS have expanded broker reporting rules to include more covered securities and, in stages, certain digital-asset broker reporting requirements. That change increases the volume of Form 1099‑B reporting brokers must provide and means taxpayers often must reconcile broker-reported basis with their own records on Form 8949 and Schedule D. See the Form 8949 and Schedule D instructions for how to reconcile mismatches (irs.gov/forms-pubs/about-schedule-d).

  • Real estate and primary-residence conversions: Sale of a principal residence remains eligible for the Section 121 exclusion (up to $250,000 for single filers; $500,000 for married filing jointly) when the ownership and use tests are met. Recent guidance and court rulings have focused on how to allocate the exclusion and calculate gain when a home was converted to a rental before sale, and how depreciation claimed while it was a rental affects gain and reporting. See IRS Publication 523, Selling Your Home (irs.gov/pub/irs-pdf/p523.pdf).

  • Installment sales and like-kind exchanges: Although like-kind exchanges (Section 1031) for personal property were limited by the 2017 tax law to exclude most personal property, recent rulings and guidance still affect the timing of recognition for installment sales and the proper reporting of installment sale income on Form 6252. Always confirm whether a transaction qualifies for special timing rules.

Practical examples (how these rulings affect real returns)

1) Small, frequent crypto trades: Each disposal of a cryptocurrency unit is a taxable disposition that can create gain or loss (sale, trade, payment for goods, or exchange to another crypto). Even small trades add up. If an exchange provides a Form 1099‑B-like statement, you must reconcile it with your own cost basis records on Form 8949 and Schedule D (IRS Virtual Currency FAQs; Schedule D instructions).

2) Selling a home that was later rented: Suppose you lived in a house for 10 years, converted it into a rental for 3 years, then sold it. You may still qualify for some or all of the Section 121 exclusion if you meet the ownership and use tests, but any depreciation claimed as a rental triggers “depreciation recapture,” which must be reported and taxed separately. Documentation of dates of use and depreciation schedules is essential (IRS Publication 523).

3) Broker-reported basis mismatch: If a broker reports proceeds but not an accurate basis (or reports an algorithmic basis that differs from the taxpayer’s records), you must attach Form 8949 and explain the adjustment. Small mismatches commonly result in IRS notices asking for clarification.

What forms and lines change or matter

  • Form 8949: Sales and other dispositions of capital assets — used to reconcile each transaction’s proceeds, cost basis, and adjustments.
  • Schedule D (Form 1040): Summary of capital gains and losses; totals from Form 8949 flow here.
  • Form 1099‑B (broker reporting): Brokers supply proceeds and (for covered securities) basis information to taxpayers and the IRS.
  • Form 6252: Used to report income from installment sales when a seller receives payments over more than one tax year.

Refer to the IRS instructions for each form for current line-by-line guidance (irs.gov/forms-pubs).

Recordkeeping checklist (what I recommend to clients)

  • Exported trade history and wallet addresses (for crypto). Keep raw exchange CSVs or ledger exports.
  • Contract-of-sale documents, closing statements, and depreciation schedules for real estate transactions.
  • Broker statements that show wash-sale adjustments, lot‑level cost basis elections, and dividends or splits.
  • Proof of original acquisition date and cost (receipts, settlement statements, gift documents, or estate valuations).

Keep these records for at least three years after the date the return was filed; longer where unreported income is involved. The IRS generally has up to three years to audit, and up to six years where substantial omissions occur (see irs.gov for statute-of-limitations details).

Common mistakes and how to avoid them

  • Assuming small crypto transactions don’t require reporting. Every disposal can be a taxable event.
  • Failing to reconcile Form 1099‑B with Form 8949. If the broker’s basis differs from your records, you must explain the difference.
  • Overlooking depreciation recapture when converting a personal residence to rental and then selling.
  • Not using consistent cost‑basis methods across lots (FIFO vs. specific identification) when allowed; document your election and apply it consistently.

Professional tips and strategies

  • Use cost‑basis software or a single consolidated spreadsheet to track lots across exchanges and custodians.
  • For concentrated stock positions, consider spreading sales across tax years to manage marginal tax rates (see our guide on timing capital gains).
  • When converting a primary home to rental, consult a tax professional before taking depreciation or making elections — depreciation affects the Section 121 exclusion calculation and produces taxable recapture.
  • When you receive a 1099 that looks incorrect, don’t ignore it — contact the issuer immediately and keep written documentation of your communications.

(See related articles: “Capital Gains Tax: Strategies to Minimize It” and “Optimizing Tax Lots to Minimize Capital Gains” for practical implementation ideas.)

Frequently asked questions

Q: Do I need to report tiny crypto sales or use of crypto to buy coffee?
A: Yes. For tax purposes, spending crypto is a disposition of property and generally produces gain or loss measured by the difference between fair market value at the time of the transaction and your basis in the coins used. See IRS virtual currency guidance at irs.gov/virtual-currencies.

Q: If my broker shows a basis on Form 1099‑B, do I still need to report anything?
A: Often yes. You still must report the sale on Form 8949 and reconcile any mismatches. Broker reporting reduces some work, but mismatches or omitted adjustments still require taxpayer reporting.

Q: Does the wash‑sale rule apply to cryptocurrency?
A: As of 2025, the wash‑sale rules in IRC Section 1091 explicitly apply to stocks and securities; the statute does not clearly sweep in most digital assets. However, regulatory and legislative developments continue, so monitor IRS guidance.

Q: What happens if I report incorrectly?
A: The IRS may assess additional tax, penalties and interest. If the error is honest and corrected promptly (amended return), penalties can often be minimized; for larger disputes, professional representation may be needed.

Action steps before you file

  1. Gather broker 1099s, exchange reports, closing statements and depreciation schedules.
  2. Reconcile broker basis and proceeds with your own records; prepare Form 8949 for adjusted transactions.
  3. Confirm eligibility for exclusions (Section 121 for home sales) and calculate any recapture.
  4. Consider an extension if you need extra time to collect accurate cost‑basis data—filing an accurate return is usually better than rushing.

Authoritative sources and further reading

Professional disclaimer

This article is educational and summarizes typical reporting issues and public IRS guidance as of 2025. It is not a substitute for personalized tax advice. Tax situations vary—consult a qualified tax professional or CPA for advice tailored to your facts and to confirm the latest IRS rules.

Author: FinHelp contributor and tax practitioner (experience advising clients on capital gains reporting).