Crypto taxes explained: what the IRS expects from you

Selling bitcoin for a profit, swapping one token for another, or getting paid in crypto can all show up on your federal tax return, even if the money never touched your bank account. The IRS treats digital assets as property, not currency, and that single rule explains most of how crypto taxes work in the United States. This guide has crypto taxes explained in plain English: which actions trigger tax, which forms are involved, and what records you should be keeping now.

One note before we start. This is general information, not tax advice. Tax rules change, individual situations vary, and you should check with a qualified tax professional before filing.

Crypto taxes explained: why "property" matters

The IRS digital assets page states it plainly: for US tax purposes, digital assets are considered property, not currency. That puts bitcoin, ether, stablecoins and other tokens in roughly the same bucket as stocks or a piece of art.

The practical consequence is that when you get rid of crypto, you usually have a capital gain or loss. You work it out the same way you would for a stock:

• Start with what you received for the crypto, measured in US dollars.
• Subtract your basis, which the IRS describes as what you paid to acquire it, including fees and commissions.
• The difference is your gain or loss.

So if you bought some ether for $1,000 including fees and later sold it for $1,400, you have a $400 gain. If you sold it for $700, you have a $300 loss.

If you need a refresher on the assets themselves, our guide to Bitcoin and our explainer on Ethereum cover how they work.

What counts as a taxable event

The IRS virtual currency FAQ lists the situations that do and do not create tax. Here are the common ones.

Usually taxable

• Selling crypto for dollars. This is the most familiar case and produces a capital gain or loss.
• Trading one crypto for another. Swapping bitcoin for ether counts as disposing of the bitcoin. You owe tax on any gain, even though you never cashed out.
• Spending crypto. According to the IRS FAQ, paying for goods or services with virtual currency triggers a gain or loss equal to the difference between the fair market value of what you bought and your adjusted basis in the crypto. Buying a coffee with bitcoin is, technically, a sale.
• Getting paid in crypto. If you receive crypto for work, it is income, valued in dollars when you receive it.
• Mining and staking rewards. The IRS says rewards from mining, staking and similar activities are ordinary income when received, at their fair market value in US dollars on that date.
• Airdrops after a hard fork. The IRS FAQ says that if you receive new cryptocurrency from an airdrop following a hard fork, you have ordinary income equal to its fair market value when received.

Usually not taxable

• Buying crypto with dollars and holding it. The IRS FAQ says purchasing virtual currency with real currency alone is not a taxable event.
• Moving crypto between your own wallets. Transfers between wallets or accounts you control are not taxable, according to the IRS, even if an exchange reports the transfer. Our wallet guide explains the different kinds you might be moving between.
• Receiving a genuine gift. The IRS says receiving crypto as a bona fide gift is not taxable until you later sell or otherwise dispose of it. Your basis then depends on the giver's basis or the value when you received it.

Short term versus long term gains

How long you held the crypto changes how a gain is taxed. The IRS FAQ draws the line at one year:

• Held one year or less: a short term capital gain or loss.
• Held more than one year: a long term capital gain or loss.

That distinction matters because, according to IRS Tax Topic 409, net short term capital gains are taxed as ordinary income at your regular graduated rates. Long term gains get preferential rates of 0, 15 or 20 percent depending on your taxable income. The income thresholds for each rate are adjusted each year, so check the current figures on irs.gov.

What about losses?

Losses can help. Tax Topic 409 explains that capital losses first offset capital gains. If your losses are larger than your gains, you can deduct up to $3,000 of the excess against other income in a year, or $1,500 if you are married filing separately. Anything left over carries forward to future years.

The forms you are likely to see

Crypto reporting runs through the normal individual return. Based on the IRS digital assets page, these are the main pieces.

The digital asset question on Form 1040

Form 1040 includes a yes or no question asking whether, at any time during the tax year, you received a digital asset as a reward, award or payment, or sold, exchanged or otherwise disposed of one. The IRS says to answer "Yes" if you had any of those transactions and "No" if you only held digital assets without transacting. The IRS FAQ adds that if your only activity was buying crypto with dollars, you do not need to answer yes on that basis.

Form 8949 and Schedule D

Sales and exchanges of crypto held as a capital asset are reported on Form 8949, where each disposal gets listed, and totals flow to Schedule D (Form 1040), which summarizes your capital gains and losses for the year.

Schedule 1 for crypto income

The IRS digital assets page notes that ordinary income from things like mining, staking and airdrops can be reported on Schedule 1 (Form 1040). If you are running a crypto business, different schedules may apply, which is one more reason to talk to a tax professional.

Form 1099-DA from brokers

This is the newest piece. According to the IRS, custodial brokers must file Form 1099-DA reporting gross proceeds from digital asset sales for transactions beginning January 1, 2025, with basis reporting following in 2026. In practice that means many exchanges will send you, and the IRS, a form showing what you sold. Treat it as a helpful starting point, not a replacement for your own records, especially if you moved crypto onto or off an exchange.

Records you should keep

The IRS digital assets page points out that the tax code requires you to keep records sufficient to back up what you report. For crypto, that means tracking:

• The date and time you acquired each asset.
• What you paid, in dollars, including fees.
• The date you sold, traded or spent it.
• What you received, in dollars, at that moment.
• Transfers between your own wallets, so you can show they were not sales.

Exchanges sometimes close or limit access to old history, so download your transaction files regularly rather than waiting until April.

Choosing which coins you sold

If you bought the same coin at different prices, which units you sold affects your gain. The IRS FAQ says you may choose which units you are disposing of, using specific identification, if you can document each unit's details, such as when it was acquired, its basis and its value when sold. Without that documentation, default rules apply. This is an area where a tax professional or reputable crypto tax software earns its cost.

Common mistakes to avoid

• Assuming no cash out means no tax. Crypto to crypto trades are taxable events.
• Ignoring small purchases. Spending crypto creates a gain or loss, however small.
• Forgetting staking income. Rewards are income when you receive them, and you then have a basis in those rewards for later sales.
• Double counting transfers. Moving coins between your own wallets is not a sale, but sloppy records can make it look like one.
• Falling for "tax refund" scams. Fraudsters impersonate the IRS and exchanges. Our crypto scam guide covers the warning signs.

For more on the rules shaping the industry, see our crypto coverage.

Frequently asked questions

Do I owe tax if I just bought crypto and held it?

Not on the purchase itself. The IRS FAQ says buying virtual currency with real currency alone is not a taxable event. Tax generally comes when you sell, trade, spend or otherwise dispose of it, or when you receive crypto as income.

Is trading one cryptocurrency for another taxable?

Yes. Because the IRS treats digital assets as property, exchanging one for another counts as disposing of the first asset, and you may have a gain or loss.

How is staking income taxed?

The IRS says staking and mining rewards are ordinary income when received, valued at fair market value in US dollars on that date. If you later sell those rewards, you may also have a capital gain or loss.

What is Form 1099-DA?

It is a form custodial brokers file to report gross proceeds from digital asset sales, starting with transactions on or after January 1, 2025, according to the IRS. Basis reporting follows in 2026. Check it against your own records and ask a tax professional about any differences.