Crypto Taxes

Crypto taxes describes how the federal income tax rules apply to digital assets, a subject that follows almost entirely from one characterization. The IRS states that for US tax purposes digital assets are considered property, not currency, a position it first set out in Notice 2014-21, which says that "general tax principles applicable to property transactions apply to transactions using virtual currency". Nothing about the treatment is special once that is accepted. What makes it feel special is that the events which count as disposals happen far more often than most owners expect.

This page covers the regime: what triggers a taxable event, how basis is tracked, what the information returns will and will not tell you, and the question on the front of the return. It does not restate the capital-gains rate schedule, or general basis mechanics, or the wash sale rule, each of which has its own page. On the last of those, one clause is enough here: the wash sale statute reaches stocks and securities, and does not currently reach cryptocurrency, which is covered in full under tax-loss harvesting.

The transactions that count as disposals are the part that catches people out, and the IRS's own guidance on answering the digital asset question on Form 1040 is the clearest list of them. You answer yes if you disposed of, sold, exchanged or transferred ownership of a digital asset for another digital asset, for dollars or other currency, in exchange for property, goods or services in any amount, or by paying a transfer fee with digital assets. You also answer yes if you received digital assets as payment for property or services, as a reward or award, from mining, staking or similar activities, or from an airdrop related to a hard fork.

The negative list is just as useful and contains one trap. You answer no if you only owned or held digital assets without transacting, if you bought but did not sell, or if you transferred assets between wallets or accounts you own or control, with the IRS adding the qualification "unless you paid a transaction fee with digital assets. This would be a digital asset transaction." So the routine act of moving your own coins between your own wallets is not a taxable event, but paying the network fee in the asset itself is a disposal of the amount used to pay it.

Basis tracking changed in a way that matters for anyone who has held assets across more than one wallet. Under the regulations that apply to acquisitions and disposals from 1 January 2025, specific identification and the first-in-first-out fallback operate within a single wallet or account rather than across everything the taxpayer owns. Many people had previously applied a universal or multi-wallet approach on a reading of earlier IRS frequently asked questions. Revenue Procedure 2024-28 was issued to bridge that gap. It provides a safe harbor allowing taxpayers to allocate unused basis of digital assets to the assets held within each wallet or account as of 1 January 2025.

That safe harbor carries deadlines rather than being open-ended, and they are worth reading carefully because they are structured as an "earlier of". A taxpayer making a specific-unit allocation had to complete it before the earlier of the first sale, disposal or transfer of the same type of digital asset on or after 1 January 2025, or the due date of the 2025 return including extensions. A taxpayer using the alternative global allocation method had to describe that method in their books and records before 1 January 2025, a date that has passed. Anyone who has not made an allocation and has already transacted in a given asset should treat this as a matter for a tax professional rather than something to reconstruct from a summary.

The information-reporting regime is where the most current confusion sits, because two rules were finalized and only one survived. The custodial broker rule is in force. Under Treasury Regulation section 1.6045-1 the reporting requirements apply to sales of digital assets on or after 1 January 2025, so gross proceeds began being reported for those sales. Adjusted basis is a separate matter. A digital asset becomes a covered security, which is what triggers basis reporting, only when it is acquired in a customer's account by a broker providing custodial services on or after 1 January 2026, and the regulation requires acquisition information to be reported for sales on or after that date of assets meeting that description.

Put those two dates together and the practical consequence is the single most useful thing on this page. An asset bought in 2021 and sold in 2027 through a custodial broker produces a Form 1099-DA showing gross proceeds and no basis, because it was not acquired on or after 1 January 2026 and so is not a covered security. The IRS receives the proceeds figure. The taxpayer is responsible for supplying the basis, and if they cannot, the entire proceeds figure looks like gain. This is not a transitional glitch that clears in a year; it persists for as long as anyone holds assets acquired before 2026.

The second rule did not survive. A separate final rule would have required brokers that regularly provide services effectuating digital asset sales, aimed at decentralized finance front ends, to report gross proceeds. Congress passed a joint resolution disapproving it under the Congressional Review Act and the President signed it. Treasury and the IRS then published a rule stating that "under the joint resolution and by operation of the CRA, this final rule has no legal force or effect", and removing it from the Code of Federal Regulations, reverting the text to what was in effect before. The Congressional Review Act adds a consequence that outlives the repeal: under 5 USC 801(b)(2), a rule disapproved this way "may not be reissued in substantially the same form", and a new rule that is substantially the same may not be issued, unless specifically authorized by a law enacted after the disapproval. The rule was published on 30 December 2024, took effect on 28 February 2025 and was removed on 11 July 2025, so anything written during that window describes a regime that no longer exists.

Each disposal is measured the way any property sale is measured: the value received, in dollars, minus the adjusted basis of what was given up. Hold the asset a year or less and the result is short-term; hold it more than a year and it is long-term. Sales and other dispositions of digital assets held as capital assets go on Form 8949. Ordinary income events, such as mining or staking rewards, go on Schedule 1 rather than being treated as sales.

A hypothetical illustration of why the swap rule surprises people. Suppose Nia buys token A for $4,000. Fourteen months later, when token A is worth $9,000, she trades all of it for token B. She has received nothing in dollars and moved nothing to a bank, but she has disposed of token A for property worth $9,000, so she has a long-term capital gain of $5,000 to report for that year. Her basis in token B starts at $9,000. If token B then falls to $3,000 and she still holds it at year end, that decline is unrealized and does nothing for her this year, so she can owe tax on a $5,000 gain while her position is worth less than she started with. All figures are illustrative.

The record-keeping that makes this survivable is unglamorous and is what the IRS asks for. For each acquisition you need the type of asset, the date and time, the number of units and the dollar value when acquired. For each disposal you need the same four items plus the basis of what went out. Because basis now works per wallet or account, those records need to be organized that way too, and a transfer between your own wallets needs recording even though it is not itself a taxable event, so that the units arriving carry their history with them.

What works in the taxpayer's favor

• Property treatment means the ordinary rules apply, including the preferential long-term rate for assets held more than a year and the ability to offset gains with losses.
• Moving assets between wallets or accounts you own is not a disposal, so reorganizing your own custody is not a taxable event.
• Broker reporting, as it phases in, will eventually put basis on the form for assets acquired within a custodial account, which removes a large part of the manual burden for future purchases.
• The digital asset question on the return is answered no by someone who merely bought and held, which is a genuinely simple outcome for the most common behavior.

What makes it hard

• Taxable events are frequent and non-obvious. A swap between tokens, a purchase of goods, and paying a network fee in the asset are all disposals.
• For assets acquired before 2026, a Form 1099-DA can arrive with proceeds and no basis, which is the shape most likely to produce an overstated tax bill or a notice.
• Basis must be tracked per wallet or account, which is more granular than the approach many people used before 2025 and cannot be reconstructed casually.
• The safe harbor for allocating pre-existing basis carried completion deadlines tied to your first disposal or your 2025 return, so it is not something that can simply be done later.
• The rules are moving. One finalized reporting rule took effect in February 2025 and was removed in July 2025, so material written in that window describes requirements that no longer apply.