A custodial wallet is held by a third party, usually an exchange, that controls the keys and reports your activity on Form 1099-DA. A self-custody wallet is one where you hold the keys; no one reports it, and the records are yours to keep.
Custodial: exchange holds the keys, files 1099-DA, may track basis for coins bought there. Self-custody: you hold the keys, nothing is reported, and basis follows only if your records do.
Self-custody does not reduce tax; it removes the paper trail. Coins moved from an exchange to your own wallet arrive at the next broker with no basis, and every transaction from a self-custody wallet has to be reconstructed from the blockchain.
Not from a broker report. It knows what left the exchange, and blockchain analysis can trace the rest. The reporting obligation is yours regardless.
Source: Treas. Reg. 1.6045-1
Last reviewed September 17, 2026. Tax rules change; confirm current law before acting.
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