A covered digital asset is a digital asset for which a broker must report cost basis on Form 1099-DA when it is sold. Under the broker reporting rules it is a unit acquired in the customer's account at that broker on or after January 1, 2026, whether bought for cash or received in an exchange the broker carried out, and still held in that account when sold.
Covered status is a label on the units, not on the customer or the account. Each lot a broker holds for a customer is either covered or noncovered, based on how and when it arrived. Units the broker acquired for the customer on or after January 1, 2026, through a purchase or an exchange it effected, are covered, because the broker recorded the acquisition and can report the basis. Units acquired earlier, and units transferred in from outside, are noncovered.
An account can hold both at once. A customer who bought BTC in 2024 and again in 2026 at the same exchange holds one noncovered lot and one covered lot of the same asset. Which lot goes out on a sale is a matter of digital asset identification, and it determines whether the resulting Form 1099-DA line carries basis or leaves it blank.
BTC bought on an exchange in February 2026 and sold there in September 2026 is covered; the form reports proceeds and basis. The same BTC bought in December 2025 is noncovered; the form reports proceeds only. SOL received in the account in 2026 by swapping ETH there is covered, with basis equal to the value of the SOL at the swap. SOL sent into the account from a self-custody wallet in 2026 is a transferred-in digital asset and is noncovered, whatever its original purchase date.
The test comes from Regulations section 1.6045-1, finalised in Treasury Decision 10000: the acquisition took place in the customer's account at the reporting broker on or after January 1, 2026, and the broker therefore holds the acquisition record. From that date basis reporting is mandatory for covered units and not mandatory for noncovered ones. The rule concerns the broker's duty; the taxpayer's duty to report the correct basis exists for every unit either way.
For a covered sale the broker's basis goes to the IRS alongside the proceeds, and the sale is entered on Form 8949 in the box for basis reported to the IRS. The taxpayer's own records should produce the same number. If they do not, either the records are wrong, the broker applied a different lot ordering, or a fee was treated differently, and the return has to carry the correct figure with the adjustment Form 8949 provides rather than a silent substitution. Covered status makes the broker's number visible to the IRS; it does not make it right.
Covered status also fixes the holding period the broker reports. Because the broker knows the acquisition date, it reports whether the sale was short-term or long-term. For noncovered units that call falls entirely to the taxpayer's records, which is the same responsibility that applies to cost basis itself.
An investor holds two covered lots of ETH at one exchange, bought in January 2026 at $2,000 and in June 2026 at $4,000, and sells one ETH in August. No lot was identified to the broker before the sale, so the broker's default ordering sends out the January lot and reports a $2,000 basis to the IRS. The tax software is set to highest-in, first-out and reports a $4,000 basis. The return now disagrees with a broker-reported covered figure with no adequate identification to support it. For covered units the lot choice is made with the broker before the sale, not in the software after it.
Read our 1099-DA accounting and cost basis reconciliation
CountDeFi reconciles covered and noncovered lots against your complete transaction history, including lot identification, broker basis tie-outs and Form 8949 boxes. See pricing.
