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Most interactions with cryptocurrency are considered taxable events. The Internal Revenue Service (IRS) treats crypto as property, not currency, which means that selling at a profit triggers capital gains taxes, while selling at a loss may allow you to take deductions.[1] And if you receive crypto as payment for a salary, service, or work performed, this is taxed as ordinary income. Understanding how cryptocurrency is taxed — and reviewing new IRS crypto guidance for 2025-2026 — can ensure a smoother tax filing.
Key Points
- Cryptocurrency is treated as property by the IRS, subject to capital gains or ordinary income tax.
- Selling, trading, spending, and earning crypto are considered taxable events.
- Buying, holding, and transferring crypto between your own wallets are generally not taxable events.
- All taxable crypto transactions must be reported, with new 2025 broker reporting rules via Form 1099-DA.
- Reporting involves calculating gains/losses, itemizing transactions on Form 8949, and summarizing the totals on Schedule D.
Do I Owe Taxes on Crypto?
Generally, you only owe crypto taxes if you make a profit, meaning you sell or “dispose of” digital currencies for more than what you paid for them. It’s important to keep in mind that rules pertaining to cryptocurrency taxation are complex and evolving. A tax professional can provide advice on your own unique circumstance, but here are key cryptocurrency tax rules to be aware of.
The #1 Rule: The IRS Treats Crypto as Property, Not Currency
For tax purposes, the IRS treats all digital assets, including cryptocurrency, as property, not as currency.[1]
This classification means that general tax principles applicable to property transactions (like stocks, bonds, or real estate) apply to all crypto transactions. As with other assets, the money gained from cryptocurrency is taxed by the IRS at different rates, either as capital gains or as ordinary income, depending on how the crypto was acquired and how long you held it.
Taxable vs Non-Taxable Events
Only certain types of transactions can trigger crypto taxes. Here’s a breakdown of taxable crypto events.[2]
Taxable as Capital Gains
• Selling crypto for fiat currency (government-backed currency like U.S. dollars): If you sell your crypto for more than you paid for it, you’ll owe taxes. If you sell at a loss, you may be able to deduct that loss.
• Exchanging one crypto to another: If you use one cryptocurrency to buy another, the transaction is treated as though you sold the first cryptocurrency at its fair market value in a fiat currency such as U.S. dollars, then immediately purchased the second cryptocurrency with those U.S. dollars. You would need to report any potential gains seen on the first cryptocurrency when it’s converted to U.S dollars.
• Using crypto to pay for goods and services: When you spend crypto, you are disposing of it, and if the value has increased since you purchased or acquired it, that triggers a taxable event.
Taxable as Income
• Getting crypto as compensation for work: If you were paid in crypto by an employer, the fair market value of that crypto at the time you received it is taxed as ordinary income.
• Accepting crypto as payment for goods or services: If you accept cryptocurrency as payment, you must report its fair market value (in U.S. dollars at time of receipt) as income to the IRS.
• Earnings or rewards from mining or staking crypto: These earnings or rewards are considered taxable income. You must report the fair market value of the cryptocurrency in U.S. dollars at the date and time you received it.
Non-Taxable Events
• Purchasing crypto with fiat currency and holding it: Holding crypto isn’t taxable. Taxes typically only apply when you dispose of it (sell, trade, spend).
• Donating crypto to a nonprofit: You do not pay taxes on crypto if you donate it to a qualified nonprofit organization (you might even be able to deduct the fair market value of the donation).
• Receiving crypto as a gift: You generally do not pay income tax on a cryptocurrency gift when you receive it.
• Gifting someone crypto: You can give someone cryptocurrency as a gift without paying taxes, provided the gift’s value is within the IRS annual gift tax exclusion limit.
• Transferring crypto between wallets or accounts you own: Moving crypto from one wallet to another (such as from an exchange to a personal hardware wallet) isn’t taxable. You can transfer over your original cost basis and date acquired to track your potential tax impact for when you eventually sell. That said, any potential transfer fees paid in cryptocurrency could trigger a taxable event.
How Much Tax Do I Owe on Crypto?
How much tax you pay on crypto generally depends on how long you owned it before selling, your taxable income, and your filing status.
Calculating Taxes on Capital Gains (When You Sell, Trade, or Spend)
Capital gains are subject to either short-term tax rates or long-term tax rates.
• If you held the crypto for more than one year, the profits qualify for the more favorable long-term capital gains tax rates (0%, 15%, or 20%) depending on your taxable income and filing status.
• If you held the crypto for one year or less, any profit is considered a short-term capital gain and is taxed at your ordinary income tax rate (10% to 37%).
Here are the capital gains tax rates for tax year 2025 (filed in 2026) that apply to the sale of cryptocurrency. Your individual tax rate depends on your filing status and household income.
2025 Long-Term Capital Gains Tax Rates
| Tax Rate | Single (Taxable Income) | Married Filing Jointly (Taxable Income) | Head of Household (Taxable Income) |
|---|---|---|---|
| 0% | Up to $48,350 | Up to $48,350 | Up to $64,750 |
| 15% | $48,351 to $533,400 | $48,351 to $300,000 | $64,751 to $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $566,700 |
Source: IRS[3]
Long-term capital gains tax are better from a taxpayer perspective, as the maximum rate is capped at 20%.
2025 Short-Term Capital Gains Tax Rates
Short-term capital gains are subject to ordinary income tax rates and max out at 37%, as shown below:
| Tax Rate | Single Filers | Married Filing Jointly | Heads of Household |
|---|---|---|---|
| 10% | Up to $11,925 | Up to $23,850 | Up to $17,000 |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 | $17,001 to $64,850 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 | $64,851 to $103,350 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,500 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,501 to $626,350 |
| 37% | Over $626,350 | Over $751,600 | Over $626,350 |
Source: IRS[3]
Below are the short- and long-term capital gains tax rates for tax year 2026 (filed in 2027):
2026 Long-Term Capital Gains Tax Rates
| Tax Rate | Single (Taxable Income) | Married Filing Jointly (Taxable Income) | Head of Household (Taxable Income) |
|---|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 | Up to $66,200 |
| 15% | $49,451 to $545,500 | $98,901 to $613,700 | $66,201 to $579,600 |
| 20% | Over $545,500 | Over $613,700 | Over $579,600 |
Source: IRS[3]
2026 Short-Term Capital Gains Tax Rates
| Tax Rate | Single Filers | Married Filing Jointly | Heads of Household |
|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $24,800 | Up to $17,700 |
| 12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 |
| 22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 |
| 37% | Over $640,600 | Over $768,700 | Over $640,600 |
Source: IRS[3]
What Are Capital Losses and How Do They Help?
A capital loss occurs when you sell or dispose of cryptocurrency for less than your cost basis. These losses can reduce your tax bill by offsetting capital gains from other crypto or traditional investments. If your losses exceed your gains for the year, you can usually deduct up to $3,000 of the excess against ordinary income and carry any remaining losses forward to future tax years.
Accurate record-keeping is key, since your ability to claim a loss depends on properly documenting your cost basis and holding period. Crypto tax-loss harvesting — intentionally selling underperforming assets to realize a loss — can also help lower your overall tax liability.
Calculating Taxes on Crypto Income (When You Earn It)
Any crypto you earn as income (such as mining, staking, and rewards) needs to be reported to the IRS like any other type of income. Taxation of crypto mining and staking rewards was established by Revenue Rule 2023-14, which states that “the fair market value of the rewards received is included in the taxpayer’s gross income in the taxable year in which the taxpayer gains dominion and control over the rewards.”[4]
In other words, any crypto you receive from mining or staking is taxed the same as ordinary income. Here’s an example.
Say you receive 0.05 Bitcoin as a mining reward. On the date you receive the reward, Bitcoin is priced at $100,000. Your cost basis (the value of the asset when you acquired it) for the reward is $5,000 (0.05 x $100,000). You must report that $5,000 as ordinary income on your tax return for the year.
If you’ve earned a lot from your crypto activity over the course of the year, it could impact what tax bracket you’re in. As a result, you could end up paying a higher rate on some of your income.
How to Report Crypto on Your Taxes: A 3-Step Guide
Reporting crypto transactions on your tax return is a multi-step process and it’s important to ensure that you get all the numbers right. Even a seemingly minor reporting error could lead to problems later if the IRS determines that you owe additional crypto taxes. Here’s how to report crypto on your taxes, and which forms you’ll need to use.
Step 1: Calculate Your Gains and Losses (Cost Basis)
The first step in reporting crypto on your taxes is determining your cost basis and calculating your gains and losses. Your cost basis includes the price you paid for a cryptocurrency plus any fees. To find your gain or loss, subtract that cost basis from the value of the crypto at the time you sold, traded, or otherwise disposed of it. You’ll also need to note how long you held the asset, since your holding period determines whether the gain is taxed at short- or long-term rates.
Many exchanges and brokerage platforms provide year-end summaries that list your transactions, and major tax software programs allow you to input this data to automate the calculations.
Beginning in 2025, new IRS guidelines require more detailed tracking under wallet-by-wallet cost basis rules, which means it’s increasingly important to maintain accurate records of all transactions, including the dates acquired, dates sold, cost basis, and any fees or transfers.
Step 2: Fill Out the Correct IRS Forms
Crypto taxes plug into the existing capital gains system. If you’re doing your taxes manually, you’ll need to report these gains/losses appropriately.
IRS Form 8949 (“Sales and Other Dispositions of Capital Assets”)
If you’re doing your taxes manually, this is where you list each taxable crypto transaction individually. Every sale, trade, or crypto-fiat conversion must appear along with its cost basis, sale prices, gain or loss amount, and whether it was a short-term or long-term transaction.[5]
Schedule D (“Capital Gains and Losses”)
After completing Form 8949, you transfer your totals onto Schedule D. This form summarizes all capital gains and losses for the year (from crypto and any other investments) and computes net capital gain or loss. That net amount then flows into your main tax return (Form 1040, etc.)[6]
The Digital Asset Question on Form 1040
The IRS now asks all taxpayers a yes-or-no question about digital asset activity on the first page of Form 1040. You must check the box correctly — failure to do so can lead to audit issues. You must answer “Yes” if you received, sold, traded, or otherwise disposed of digital assets. Simply holding crypto in a wallet without trading does not require a “Yes.” This question helps the IRS determine who may need to provide additional reporting.
Step 3: Prepare for New 2025 Broker Reporting Rules (Form 1099-DA)
Starting with the 2025 tax year (filed in 2026), crypto exchanges and brokers will be required to issue 1099-DA to report their customers’ sales and exchanges of digital assets. This form will report gross proceeds (and, in certain circumstances, gain, loss and cost-basis information) and will be issued to both the taxpayer and the IRS.
The purpose of Form 1099-DA is to help the IRS obtain more accurate information about cryptocurrency transactions, which can help improve tax compliance and reduce the risk of tax evasion.
Special Tax Scenarios: DeFi, NFTs, and Airdrops
Not all digital asset activities fit neatly into buy-and-sell categories. Some transactions fall under special tax rules that can affect your overall filing.
- DeFi (decentralized finance) loans, staking, and yield farming: Many of these activities trigger taxable events. Rewards are typically treated as ordinary income when received and then may produce capital gains or losses when later sold or swapped.
- NFTs (non-fungible tokens): NFTs are generally taxed in the same way as traditional cryptocurrencies (as capital gains or ordinary income). However, the IRS notes that some NFTs may be considered collectibles. The maximum tax rate for collectibles is 28%, as opposed to a maximum of 20% for long-term capital gains.[7] So if your NFT qualifies as a collectible and you hold it for more than a year, the higher rate may apply.
- Airdrops and hard forks: If you receive tokens as an an airdrop (a distribution of free tokens from a blockchain project) or through a hard fork (when a blockchain splits into two separate blockchains), the fair market value of the token at the time you receive them is taxed as ordinary income. When you later sell them, you’ll calculate a separate capital gain or loss based on their cost basis.
The Takeaway
The world of crypto taxes can seem complex, but the fundamental rule is simple: the IRS treats cryptocurrency as property rather than a currency. Whether you’re selling Bitcoin, swapping Ether for a new token, or earning staking rewards, nearly all interactions trigger a taxable event — either capital gains or ordinary income.
By keeping records of your transactions; understanding the difference between short- and long-term gains; and staying aware of new reporting rules, you can help ensure compliance, avoid costly penalties, and potentially use strategies like crypto tax-loss harvesting to lower your tax burden.
If you’re unsure about any transaction (especially complex DeFi, staking, or foreign wallet situations), it’s a good idea to consult a qualified tax professional with experience in digital asset taxation.
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FAQ
Do I owe taxes if I only hold cryptocurrency and make no transactions?
No, simply buying and holding cryptocurrency — even for years— does not typically create a taxable event. The IRS only taxes realized gains, meaning you must sell, trade, or otherwise dispose of the asset for tax liability to occur. However, you must still answer the IRS crypto question on your tax return accurately, even if you had no taxable transactions. Also keep in mind that rewards for mining or staking are taxed as ordinary income based on the fair market value at date of receipt.
Are losses from crypto sales deductible?
Typically, yes. If you sell crypto for less than your cost basis, you can generally deduct those capital losses. They can offset your capital gains from other investments, and if losses exceed gains, you can deduct up to $3,000 of excess losses against ordinary income each year. Remaining losses carry forward indefinitely until fully offset.
What crypto activities must be reported to the IRS?
You must report any taxable events involving crypto, including selling crypto for fiat currency; trading one cryptocurrency for another; spending crypto on goods or services; earning crypto from staking, mining, or airdrops; and receiving crypto as income (e.g., from freelance work). Even if you have no taxable events, you must still answer the IRS crypto question on your tax return accurately.
Do I pay taxes when transferring crypto between my own wallets?
No, moving crypto between wallets or exchanges you own is not taxable, as there is no sale or disposal. However, you should keep records of transfers to maintain an accurate cost basis and avoid confusion during any potential audits.
How does staking or mining affect my taxes?
Staking and mining rewards are generally considered taxable as ordinary income at their fair market value at the time you receive them. When you later sell, trade, or spend the earned crypto, it may also be subject to capital gains tax. Depending on scale and intent, mining may also be considered a business, allowing deductions for equipment and electricity.
What forms are needed to report crypto transactions?
Taxpayers typically use Form 8949 and Schedule D to report capital gains and losses from crypto. Income-related crypto (e.g., staking, mining, airdrops, and payments) goes on Schedule 1 or Schedule C if it’s business activity. Starting in tax year 2025 (filed in 2026), exchanges will issue Form 1099-DA to report their customers’ sales and exchanges of digital assets.
What happens if I fail to report my crypto transactions?
Failing to report crypto transactions can lead to penalties, interest, and potential audits. The IRS actively pursues unreported digital asset activity and has increased enforcement through data sharing with exchanges. Serious or repeated failures could result in accuracy-related penalties or, in extreme cases, criminal tax charges. Voluntary corrections can reduce consequences significantly.
Do I have to report small crypto amounts (under $600)?
Yes, every taxable crypto event, regardless of value, must be reported. Even small trades, rewards, or sales count. The $600 threshold often mentioned relates to when an exchange is required to send you, and the IRS, a specific tax form (like a Form 1099-MISC or 1099-NEC), not the minimum amount you need to report.
How can I reduce my crypto tax bill legally?
You can lower taxes through strategies like tax-loss harvesting, holding crypto for over a year to qualify for lower long-term capital gains rates, using crypto-friendly retirement accounts, and tracking fees or expenses that increase your cost basis. Accurate recordkeeping and timely reporting also help avoid penalties and unnecessary costs.
Can the IRS track crypto?
Yes, the IRS can track crypto transactions and associate them with individual taxpayers. Form 1099-DA, for example, is one way that the IRS holds taxpayers accountable by requiring brokers to report the gross proceeds from crypto sales.The federal government can also request data from crypto brokers, platforms, and exchanges to verify information included on taxpayer returns.
Yes. The IRS can track crypto through exchange reporting, blockchain analytics tools, subpoenas, and data-sharing agreements with major platforms. Even privacy coins aren’t guaranteed anonymity. The IRS treats unreported crypto like any other unreported income and has increased enforcement significantly.
About the author
Rebecca Lake
Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.
Article Sources
- IRS. Digital assets.
- Intuit Turbotax. Your Crypto Tax Guide.
- IRS. Topic no. 409, Capital gains and losses.
- IRS. Bulletin No. 2023–33.
- IRS. 2025 Form 8949.
- IRS. About Schedule D (Form 1040), Capital Gains and Losses.
- IRS. Frequently asked questions on virtual currency transactions.
Photo credit: iStock/Adene Sanchez
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