Cryptocurrency Tax Guide
Understand U.S. tax obligations for cryptocurrency transactions, including capital gains, ordinary income, and reporting requirements.
Overview
The IRS treats cryptocurrency as property for federal tax purposes. That means when you sell, trade, or use crypto, you're subject to the same tax rules as selling stocks or other property.
This is general information based on current IRS guidance. Your specific situation may differ. If you need help with your crypto taxes, use the intake form to see if we can work together.
Taxable Events
The following events typically trigger tax obligations:
- Selling cryptocurrency for fiat currency
- Exchanging one cryptocurrency for another
- Using cryptocurrency to purchase goods or services
- Receiving cryptocurrency as payment for goods or services
- Receiving cryptocurrency from mining, staking, or airdrops
- Receiving cryptocurrency as wages or compensation
Capital Gains Treatment
When you sell or trade cryptocurrency, you'll have a capital gain or loss. How it's taxed depends on how long you held it:
Short-term capital gains:
Property held for one year or less. Taxed at ordinary income tax rates.
Long-term capital gains:
Property held for more than one year. Taxed at preferential capital gains rates (0%, 15%, or 20% depending on income level).
Your gain or loss is the difference between what you got for the crypto and what you paid for it (your cost basis).
Ordinary Income Events
Some crypto you receive counts as ordinary income and gets taxed at your regular income tax rate. Report these at their dollar value when you received them:
- Cryptocurrency received as wages or compensation
- Mining rewards
- Staking rewards (see separate guide)
- Airdrops
- Hard fork proceeds
- Referral bonuses or promotional rewards
Whatever you report as income becomes your cost basis when you later sell or trade that crypto.
Cost Basis Methods
Cost basis is what you originally paid for an asset. When you sell crypto that you bought at different times and prices, you need to figure out which specific coins you're selling.
Specific Identification:
You can pick which specific units you're selling, but only if you identify them no later than the time of the sale and your records support the choice. An identification made after the fact does not count.
FIFO (First-In, First-Out):
If you do not make a timely identification, the oldest units in that wallet or account are treated as sold first.
Basis is tracked per wallet or account, not across your whole portfolio
For transactions on or after January 1, 2025, basis must be tracked wallet by wallet and account by account. The older "universal" approach, which pooled every unit you owned as if it sat in a single wallet, is no longer permitted. Rev. Proc. 2024-28 provided a one-time transition: taxpayers who had been using the universal method had to allocate their unused basis to specific wallets and accounts as of the start of 2025. If you have never done that allocation, it is worth reconstructing before a disposition forces the question.
Keep detailed records to back up whichever method you use.
Reporting Requirements
Cryptocurrency transactions must be reported on your tax return:
- Form 1040: Answer the digital asset question on the front of Form 1040. Every filer must answer it, including people who owe nothing on crypto. The answer is "No" if all you did was hold, move assets between wallets you own, or buy with US dollars
- Schedule D and Form 8949: Report capital gains and losses. One difference from stocks is worth knowing: the wash-sale rule in IRC section 1091 applies to "stock or securities," and crypto is currently neither, so a loss harvested on a crypto position and immediately repurchased is not currently disallowed. Congress has been weighing an extension of the rule to digital assets, so treat this as current law rather than permanent law
- Schedule 1, line 8v: Report ordinary income from digital assets not reported elsewhere. This is the dedicated line for tax year 2024 and later, replacing the generic line 8z catch-all
- Schedule C: Report mining income here only if your mining is a trade or business, in which case it is also subject to self-employment tax. Mining income from an activity that is not a business goes on Schedule 1, line 8v(IRS)
Form 1099-DA: what your broker now sends the IRS
Custodial brokers and exchanges now file Form 1099-DA reporting your digital asset dispositions. Two details matter for reconciliation:
- 2025 transactions: brokers reported gross proceeds only. Cost basis was generally not required on those forms, so the basis behind every 2025 disposition had to come from your own records.
- 2026 transactions: brokers must also report basis for covered digital assets, meaning assets acquired and held in the same broker account after 2025. Assets you transferred in from a wallet or another platform will often still show incomplete or missing basis.
Because these forms are matched against your return, a 1099-DA that reports large gross proceeds with no basis can look like a large unreported gain. Reconcile each form to your own per-wallet records before filing rather than after a notice arrives.(IRS)
Does your TY2025 1099-DA omit basis or disagree with your records?
Start with the free private risk scan. If it points to a source or data-health issue, Arc & Ledger's readiness assessment inventories up to three exchange or wallet sources and 5,000 transaction rows, identifies missing evidence and import blockers, and gives you a written fit decision before a full reconciliation is accepted.
No tax documents are collected on the public request page.
Not reporting crypto transactions can lead to penalties and interest charges. If you expect to owe $1,000 or more in tax, you may need to make estimated tax payments.(IRS)
Record Keeping
Maintain detailed records of all cryptocurrency transactions, including:
- Date of acquisition and disposal
- Fair market value in U.S. dollars at time of each transaction
- Cost basis and holding period
- Type of transaction and parties involved
- Exchange or wallet addresses
- Transaction fees
Keep records for at least three years from when you file your return. If you substantially underreported income, keep them longer.
Foreign platforms are a narrower question than most articles suggest. Under FinCEN Notice 2020-2, an offshore account holding only virtual currency is not currently reportable on the FBAR(FinCEN). FinCEN has said it intends to amend the regulations to bring virtual currency in, so this is a position to re-check rather than rely on indefinitely. Two things change the answer today: if the same foreign account also holds fiat currency or securities, the account is reportable once your aggregate foreign accounts top $10,000(FinCEN); and digital assets can still count toward Form 8938(IRS) under FATCA depending on how they are held. Because the two regimes diverge here, the holding structure deserves a look rather than an assumption.
Keep a running record of each transaction, its cost basis, and its date. That record is what turns a broker's or exchange's form into an accurate return.
Crypto Capital Gains Calculator
Estimate your capital gains tax on a crypto transaction based on cost basis, sale price, and holding period.
Crypto Capital Gains Calculator
Estimate only. Long-term thresholds are 2026 single-filer figures; married filing jointly thresholds are higher, and a large gain can push part of it into a higher bracket. Does not include Net Investment Income Tax (3.8%) for high earners or state tax.
These figures are estimates from the inputs above, not tax advice. Request availability
Frequently Asked Questions
Primary sources
- IRS, Digital assets
- Rev. Proc. 2024-28 (allocating digital asset basis to wallets and accounts)
- IRS, About Form 1099-DA, Digital Asset Proceeds From Broker Transactions
- IRS, Final regulations and related guidance for broker reporting on digital assets
- IRS Notice 2023-27 (nonfungible tokens treated as collectibles)
- 26 U.S.C. 1091 (loss from wash sales of stock or securities)
- FinCEN Notice 2020-2 (virtual currency and the FBAR)
- FinCEN, Report Foreign Bank and Financial Accounts (FBAR)
- IRS, About Form 8938, Statement of Specified Foreign Financial Assets
Related Guides
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IRS Tax Controversy & Resolution Guide
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Entertainment Industry Tax Guide
Tax guide for actors, writers, musicians, and producers in Los Angeles. Loan-out companies, residuals, union income, agent deductions, LA Creative Artist exemption, and multi-state taxation.
Disclaimer: This guide is general information, not tax advice for your specific situation. Tax law changes, and how a rule applies depends on your facts. Reading this page does not create a client relationship with Arc & Ledger LLC. Before acting on anything here, confirm how it applies to your circumstances with a qualified tax professional.