Cryptocurrency is taxed in the United States under a framework most investors find counter-intuitive. The IRS does not treat crypto as a currency. It treats it as property, which means almost every disposal triggers a capital gain or loss calculation, and many income-style events trigger ordinary income at fair market value. The rules below cover individual US taxpayers — not businesses, miners-as-a-trade, or non-US residents.

How the IRS treats crypto

Property, not currency. Under Notice 2014-21, virtual currency is treated as property for federal income tax purposes. Every time you dispose of a cryptocurrency, you realize a capital gain or loss equal to the difference between the fair market value at disposal and your cost basis in that lot.

This treatment is the source of nearly every other rule in this guide. It is why swapping one token for another is taxable, why spending crypto on a coffee triggers a capital event, and why airdrops are ordinary income at receipt and a capital asset thereafter.

Taxable events

The following are dispositions that trigger capital gain or loss reporting:

  • Selling crypto for US dollars on an exchange or peer-to-peer.
  • Swapping one cryptocurrency for another (BTC → ETH, USDC → SOL). The fair market value of what you receive is the proceeds; your cost basis in the asset you gave up is your basis.
  • Spending crypto on goods or services. Buying coffee with BTC is a sale of BTC at the coffee price, plus a separate purchase.
  • Paying employees or contractors in crypto. Wages and self-employment income reported at fair market value.

The following are not taxable events:

  • Buying crypto with US dollars and holding it — no taxable event until disposal.
  • Transferring between your own wallets — moving BTC from Coinbase to a self-custody wallet is not a disposal, though network fees may have basis implications.
  • Holding through a fork or airdrop you cannot access — taxable only at receipt when you have dominion and control.
  • Gifting below the annual exclusion (currently $18,000 per recipient for 2025; $19,000 announced for 2026) — though basis carries over to the recipient.

Calculating gains and losses

For each disposal you compute:

Proceeds (FMV at disposal) − Cost basis (what you paid, plus acquisition fees) = Gain or loss

Holding period determines the rate. Held one year or less is a short-term gain, taxed at ordinary income rates (10%–37%). Held more than one year is a long-term gain, taxed at preferential rates (0%, 15%, or 20%) plus, for higher earners, the 3.8% Net Investment Income Tax.

Worked example. You bought 1 BTC for $30,000 in February 2024 (including the exchange fee). In March 2026 you sell that BTC for $50,000 net of fees. Holding period exceeds one year, so the $20,000 gain is long-term. At the 15% bracket your federal tax on this disposal is $3,000, plus state tax where applicable. Basis tracking is per-lot, not per-coin: if you have ten separate BTC purchases, each is a distinct lot.

Lot identification methods. The default is First-In, First-Out (FIFO). The IRS also permits specific identification, which means you may select Highest-In, First-Out (HIFO) or any other order if you can substantiate the lots at the time of sale (date, time, basis, proceeds). Once 1099-DA broker reporting is in place (see below), most brokers will default to FIFO unless you actively elect otherwise.

Form 8949 and Schedule D

Crypto dispositions go on Form 8949, one row per disposition. Each row shows the description, acquired date, sold date, proceeds, cost basis, adjustments, and gain or loss. Short-term and long-term dispositions are reported on separate sections of the form.

The totals from Form 8949 flow into Schedule D, which aggregates capital gains and losses, applies the $3,000 net capital loss limitation (with carryforward), and feeds into your Form 1040.

Form 1040 also contains a digital asset question at the top of page 1: you must answer yes if at any point during the year you received, sold, exchanged, or otherwise disposed of a digital asset. The question applies even if you owe no tax.

New 1099-DA broker reporting (2026+)

Under final regulations issued by Treasury and the IRS, US-based crypto exchanges, payment processors, and certain hosted-wallet providers must issue Form 1099-DA for digital asset sales beginning with the 2026 tax year (filed in early 2027). For the 2026 tax year, gross proceeds reporting applies; cost basis reporting begins with the 2026 tax year and phases in further for non-covered securities.

What this means for investors: the IRS will now receive a copy of your gross sale proceeds directly from the exchange, in the same way Form 1099-B has long worked for stocks. Reconciling these forms to your own records — particularly across multiple exchanges, self-custody activity, and DeFi — will become the single largest source of crypto tax friction. Discrepancies are likely in the first year of implementation.

Wash sale considerations

The federal wash sale rule under IRC §1091 applies only to "stock or securities." Because crypto is treated as property, not a security, the wash sale rule does not currently apply to digital assets. This means you can sell crypto at a loss and repurchase the same token immediately, claim the loss, and reset your basis.

This planning tool is unlikely to be permanent. Multiple federal proposals — including provisions in earlier Build Back Better drafts and the Lummis-Gillibrand Responsible Financial Innovation Act — have proposed extending §1091 to digital assets. Treat current treatment as a window that may close.

Staking, yield farming, and DeFi income

The IRS confirmed in Revenue Ruling 2023-14 that staking rewards are included in gross income at fair market value at the time the taxpayer gains dominion and control over the new tokens. That value becomes your basis going forward. Selling those tokens later is a separate, second taxable event subject to capital gains rules.

The same principle extends to most DeFi yield: liquidity provider rewards, lending interest, vault yields, and most token emissions are ordinary income at receipt. Activity inside automated market makers can also create taxable swaps even if you intuitively think of yourself as merely "providing liquidity."

Airdrops, hard forks, and rewards

Per Revenue Ruling 2019-24, airdropped tokens received following a hard fork are ordinary income at fair market value on the date the taxpayer gains dominion and control. The same treatment applies to most marketing airdrops where tokens land in a wallet the user controls.

A hard fork without a new asset received is not income. A hard fork where the new asset is unreachable — for example, distributed to a wallet you do not control — is also not income until you can dispose of it.

Referral bonuses, learn-and-earn rewards, and exchange promos are typically ordinary income, similar to airdrops, at fair market value when credited.

Crypto in retirement accounts

Crypto held inside a qualified retirement account follows the tax wrapper of the account, not the asset class. A Bitcoin position inside a Roth IRA is not currently taxable on appreciation and is tax-free at qualified withdrawal. A traditional IRA defers tax until withdrawal, taxed as ordinary income.

401(k) access is limited. Fidelity offers a Bitcoin allocation option inside its workplace 401(k) plans, capped at 20% of new contributions and subject to employer adoption. Self-directed IRAs at custodians like Alto, Rocket Dollar, and BitcoinIRA allow broader holdings but carry custody fees and additional compliance overhead.

Direct rollovers and in-kind transfers between qualified accounts are not taxable events. Moving crypto from a personal wallet into an IRA generally is, however, treated as a sale.

Record-keeping requirements

For each transaction you should retain:

  • Date and time in UTC.
  • Asset symbol and quantity.
  • Counterparty or exchange (which account, which venue).
  • Fair market value in USD at the time of the transaction.
  • Cost basis for each lot acquired.
  • Transaction fees — both exchange fees and on-chain gas — which generally add to basis on acquisition and reduce proceeds on disposal.
  • Wallet addresses and transaction hashes for self-custody activity.

Retain records for at least six years after the return is filed. Where basis is supported only by exchange data that may not survive a venue shutdown, export your full history to CSV at least annually.

Tax software for crypto

The mature options in this category as of 2026 include CoinTracker, Koinly, CoinLedger, and TaxBit. Each connects via read-only API to major exchanges and on-chain wallets, normalizes transactions across venues, applies a lot-tracking method, and exports Form 8949 and Schedule D in the formats accepted by TurboTax, H&R Block, TaxAct, and most CPAs.

Listed without endorsement. Pricing, supported venues, DeFi-protocol coverage, and accuracy of automated cost basis tracking differ substantially. Always reconcile a software-produced 8949 to your own records before filing.

When to consult a CPA

Most US investors with a small number of exchange transactions and no DeFi exposure can self-file using consumer tax software. Engage a CPA when any of the following apply:

  • Realized gains or losses above approximately $50,000 in a tax year.
  • Significant DeFi activity — liquidity provision, yield farming across multiple protocols, leverage, or perpetual swap activity.
  • Cross-border holdings, foreign exchange use, or possible FBAR / FinCEN Form 114 exposure.
  • Mining or staking operations conducted at scale that may rise to a trade or business.
  • NFT activity beyond a small number of transactions.
  • Use of complex structures such as LLCs, trusts, or self-directed retirement accounts holding digital assets.
  • Receipt of a CP2000 notice, audit letter, or any IRS correspondence relating to digital assets.

CPAs with crypto practice areas are now common in major US metros. The AICPA's Digital Asset task force and a number of CPA directories maintain searchable practitioner listings.