Crypto Taxes in the US: How the IRS Treats Digital Assets

The IRS has taxed crypto since 2014, and its rules have only gotten more detailed since then. This guide walks through how digital assets are generally treated under US federal tax law. It is educational, not personalized tax advice — crypto tax situations get complicated fast, and the right answer for your return depends on facts a website cannot know.

The foundational rule: crypto is property, not currency

IRS Notice 2014-21 established that virtual currency is treated as property for federal tax purposes, not as foreign currency. That single classification is why crypto transactions can trigger capital gains or losses the same way selling stock does, rather than being ignored the way currency exchange typically is for individuals. The IRS maintains an updated hub on this at IRS.gov/digital-assets, and a longer FAQ at Frequently Asked Questions on Virtual Currency Transactions.

What counts as a taxable event

Common triggers for a reportable gain or loss include:

• Selling crypto for US dollars. Gain or loss is the difference between sale proceeds and your cost basis.
• Trading one crypto asset for another. Swapping Bitcoin for Ether, for example, is treated as disposing of the Bitcoin at its fair market value, not a tax-free exchange.
• Spending crypto on goods or services. Paying with crypto is treated as selling it, with gain or loss measured at the time of the purchase.
• Receiving crypto as payment, from mining, staking rewards, or an airdrop. This is generally taxed as ordinary income at fair market value when received, which also sets your cost basis for that crypto going forward.

Simply buying crypto with dollars and holding it, moving crypto between wallets you control, or gifting it (within limits) are generally not themselves taxable events, though gifting and inheritance have their own separate rules.

Capital gains: short-term vs long-term

If you dispose of crypto held for one year or less, any gain is generally taxed as a short-term capital gain, at your ordinary income tax rate. Held for more than a year, gains generally qualify for lower long-term capital gains rates. This is the same holding-period structure that applies to stocks, and it’s one of the most consequential distinctions in crypto tax planning.

Reporting: Form 8949, Schedule D, and the digital asset question

Capital gains and losses from crypto sales are generally reported on IRS Form 8949 and summarized on Schedule D of Form 1040. Since the 2020 tax year, Form 1040 has included a direct yes/no question asking whether you received, sold, exchanged, or otherwise disposed of a digital asset during the year — it applies broadly, and answering it accurately matters regardless of whether you owe any tax.

What’s new: Form 1099-DA

Starting with the 2025 tax year, covered digital asset brokers — including most centralized US exchanges — are required to report customer sales to the IRS on a new form, Form 1099-DA. For 2025 transactions (forms issued in early 2026), brokers generally report gross proceeds only; you are still responsible for tracking and reporting your own cost basis to calculate gain or loss. Cost-basis reporting by brokers is scheduled to begin with 2026 transactions, and initially only for assets acquired on or after January 1, 2026 and held continuously at the same broker. In practice, that means your own records — purchase dates, prices, and fees — remain essential even as broker reporting expands.

Mining, staking, and other income

Crypto received from mining or staking is generally taxed as ordinary income at its fair market value when you gain control of it, and that value becomes your cost basis if you later sell it. Airdropped tokens are treated similarly: taxable as ordinary income when you have dominion and control over them. If crypto activity rises to the level of a trade or business rather than a hobby, self-employment tax and business-expense rules can also come into play — another reason this area benefits from professional advice tailored to your situation.

Cost basis methods and why they matter

When you sell part of a crypto holding you built up through multiple purchases at different prices, you need a method for deciding which “lot” you sold. Common approaches include first-in-first-out (FIFO), specific identification (choosing which lot to sell, if your records support it), and, for some assets and situations, other methods your tax software or preparer may support. Which method you use can meaningfully change your reported gain in a given year, especially in a volatile asset. This is a case-by-case decision best made with a tax professional who can also confirm which methods the IRS currently permits for digital assets specifically. Getting this wrong is not usually catastrophic, but it can mean paying more tax than necessary or, worse, understating gains in a way that draws scrutiny once broker-reported data becomes more complete under Form 1099-DA.

Losses can offset gains — within limits

Capital losses from crypto can generally offset capital gains, and up to a limited amount of ordinary income each year, with any excess carried forward to future tax years, following the same general capital-loss rules that apply to stocks. Crypto is not currently subject to the “wash sale” rule that applies to stocks and securities in the same way, though that has been a recurring subject of legislative proposals, so it is worth confirming current-year rules rather than assuming past guidance still applies.

Recordkeeping that saves you later

For every transaction, keep the date, the fair market value in dollars at the time, the amount and type of crypto involved, and any fees paid. Exchange-provided reports, especially before 1099-DA cost-basis reporting is fully phased in, are not guaranteed to be complete or correct, particularly if you moved assets between platforms or self-custody wallets.

Frequently asked questions

Do I owe tax if my crypto lost value and I just moved it between my own wallets?

Moving crypto between wallets you own and control is generally not a taxable event because there is no disposition. A loss is only realized when you actually sell, trade, or spend the asset.

Is staking income taxed twice — once when received and again when sold?

You’re taxed once as ordinary income when you receive staking rewards, based on their value at that time. If you later sell them, you separately calculate capital gain or loss based on any price change since that receipt value became your cost basis — that’s not double taxation, it’s two separate events.

Do I need to report crypto if I only had losses?

Yes. The digital asset question on Form 1040 asks about transactions generally, not just gains, and reporting losses accurately is also how you claim the tax benefit of offsetting other gains.

What happens if I don’t report crypto transactions?

The IRS has stepped up digital asset enforcement, and broker reporting through Form 1099-DA is expanding the data the agency receives directly from exchanges. Underreporting income risks penalties and interest in addition to the tax owed; if you’re behind on past filings, a licensed tax professional can advise on options for coming into compliance.