Bitcoin Withdrawal Loophole Creates Tax Reporting Headache

The US Internal Revenue Service (IRS) has a new rule for reporting cryptocurrency gains on tax forms. According to a recent article, if you withdraw your Bitcoin from an exchange and return it to the same account, you may not have to report the acquisition cost when selling it. This can create a 'cost-basis blind spot' on your 2026 crypto tax forms.

The rule applies to assets acquired after 2025 in the reporting broker's custodial account and held there until disposal. However, if you bought Bitcoin before 2026 or transferred it into the broker, the basis reporting is voluntary. This distinction can lead to confusion for investors trying to report their gains.

Consider a hypothetical example: an investor buys 0.1 Bitcoin for $5,000 in February 2026 and sells it for $7,000 in September. If they bought and continuously held the Bitcoin with the selling broker, the basis reporting is mandatory. But if they withdrew the Bitcoin to an owned wallet and returned it to the same account, the basis reporting is voluntary.

This can lead to three separate questions for investors: what their platform displays, what it reports to the authority, and what their full transaction history supports. Calculating the gain still requires connecting the sale to the original acquisition, the correct lot, and any subsequent adjustments.