How Crypto Taxes Work: A Guide for Investors

For US federal income tax, crypto is treated as property, so tax arises when you dispose of it or receive it as income, not when you buy or hold it. Selling for dollars, swapping one coin for another and paying for goods are all disposals; each produces a capital gain or loss equal to what you received minus your basis (your cost, including fees). Moving crypto between wallets or accounts you own is not a disposal.

Key takeaways

A swap and a $5 purchase are both taxable; there is no small-transaction exemption for crypto.
Gain on units held more than one year is long-term, taxed at 0%, 15% or 20%; a single filer pays 15% on taxable income from $49,450 to $545,500 in 2026. Short-term gain is taxed at ordinary rates.
Since 2025, basis is tracked wallet by wallet; without a timely specific identification, the earliest units in that wallet or account count as sold first (FIFO).
Form 1099-DA reports gross proceeds from 2025, and basis from 2026 only for units acquired on or after January 1, 2026 in that custodial account and held there.
The wash-sale rule does not reach crypto today; a House bill introduced September 14, 2026 would change that if enacted.

Crypto is property for tax

The IRS set the baseline in Notice 2014-21: virtual currency is treated as property, the general rules for property transactions apply, and it is not currency for foreign-currency gain or loss. The IRS digital assets page applies this to all digital assets, including stablecoins and NFTs. This guide covers US federal income tax only; state rules vary.

Gain or loss = Amount realized − Adjusted basis

Amount realized = cash or fair market value received − transaction costs of the disposal
Adjusted basis  = what the units cost + transaction costs paid to acquire them

Under the IRS virtual currency FAQs, basis for crypto received as income equals the value reported as income. For disposals since 2025, 26 CFR 1.1001-7 says fees paid to make a sale or swap reduce the amount realized, and that using crypto to pay a fee is itself a disposal of the units spent.

Illustrative example 1: a swap

An investor buys 1 ETH for $2,000 and pays a $10 fee, so basis is $2,010. Eight months later, with ETH at $3,500, the investor swaps the 1 ETH for 0.05 BTC (an implied BTC price of $70,000). The amount realized is the $3,500 value of the BTC received, so the short-term gain is $3,500 − $2,010 = $1,490, even though no dollars changed hands. A $5 swap fee would cut the gain to $1,485. Under 26 CFR 1.1012-1(h), the new 0.05 BTC has a basis of $3,500, its value at the swap, and under the IRS FAQs its holding period begins the day after it is received.

Illustrative example 2: a $5 coffee

Paying for a $5 coffee with 0.00005 BTC bought when BTC traded at $40,000 is a disposal: amount realized $5.00, basis $2.00, gain $3.00. The $200 personal-transaction exclusion in IRC section 988(e) covers foreign currency only, and Notice 2014-21 says crypto is not currency for that purpose. Three such coffees a week for a year means 156 disposals and $468 of gain.

Taxable and non-taxable events

Sources for the table: the IRS digital assets page, the FAQs and the 2025 Form 1040 instructions.

Event	Taxable now?	How it is measured or reported
Selling crypto for dollars	Yes	Capital gain or loss: dollars received − basis
Swapping one crypto for another (including into a stablecoin)	Yes	Capital gain or loss: value of the coin received − basis of the coin given up
Paying for goods or services with crypto	Yes	Capital gain or loss: value of what was bought − basis
Paying a network or platform fee in crypto	Yes	Disposal of the units used to pay the fee
Receiving crypto as wages or for services	Yes	Ordinary income at fair market value when received; wages go on Form W-2, contractor pay goes on Schedule C and is generally subject to self-employment tax
Mining, staking rewards, airdrops after a hard fork	Yes	Ordinary income at fair market value when received; reported on Schedule 1, line 8v, unless it is business income
Buying crypto with dollars	No	Sets basis (price plus fees)
Moving crypto between wallets or accounts you own	No	Not taxable, even if a platform issues a form; a fee paid in crypto is still a disposal
Giving crypto as a gift	No income tax for the giver	Form 709 if gifts to one person exceed the annual exclusion ($19,000 for 2026)
Donating crypto to a qualified charity	No gain recognized	Possible deduction for itemizers; Form 8283 above $500, qualified appraisal above $5,000

Gifts

Under the Form 709 instructions, a gift tax return is generally due when gifts to one person other than a spouse exceed the annual exclusion; Rev. Proc. 2025-32 sets it at $19,000 for 2026. Filing rarely means paying, because taxable gifts first use up the $15,000,000 lifetime basic exclusion for 2026. The recipient owes nothing on receipt.

Donations

Under the virtual currency FAQs, donating crypto to a section 170(c) charity produces no gain or loss; the deduction is fair market value if the coin was held more than one year, otherwise the lower of basis and value. Publication 526 says it generally requires itemizing, and income-based limits apply. The Form 8283 instructions require the form above $500; in CCA 202302012 (January 2023), IRS Chief Counsel concluded that crypto deductions above $5,000 need a qualified appraisal even for widely traded coins.

Stolen crypto

Theft gets narrow relief. Since 2018, a personal theft loss has been deductible only to the extent it is attributable to a federally declared disaster or offset by personal casualty gains, as IRS Topic 515 describes. Public Law 119-21, section 70109, made that limit permanent and, for tax years beginning after December 31, 2025, also allows losses attributable to a State declared disaster. Losses in a transaction entered into for profit follow separate rules.

Holding period and 2026 rates

IRS Topic 409 sets the line: units held more than one year produce long-term gain or loss, and units held one year or less produce short-term. The count begins the day after acquisition and includes the day of disposal.

2026 filing status	0% rate up to	15% rate up to	20% rate above
Single	$49,450	$545,500	$545,500
Married filing jointly	$98,900	$613,700	$613,700
Head of household	$66,200	$579,600	$579,600

The thresholds are taxable income from Rev. Proc. 2025-32, which also puts the 2026 single 24% bracket at $105,700 to $201,775. The 3.8% net investment income tax in IRS Topic 559 can apply on top when modified adjusted gross income exceeds $200,000 (single or head of household) or $250,000 (married filing jointly).

Illustrative example 3: one year changes the bill

A single filer has $150,000 of 2026 taxable income, including a $10,000 crypto gain, and modified adjusted gross income below $200,000. If the units were held one year or less, the whole gain falls in the 24% bracket: $10,000 × 24% = $2,400. If they were held more than one year, it is taxed at 15%: $10,000 × 15% = $1,500. Crossing the one-year line cuts federal tax on this gain by $900, or 37.5%. State income tax, where it applies, is extra.

Losses and the wash-sale question

IRC section 1091 disallows a loss on "stock or securities" if substantially identical ones are bought within 30 days before or after the sale. Crypto held as property is generally not treated as stock or securities for this rule, which is why Treasury's fiscal 2025 revenue proposals asked to extend it. H.R. 10357, the Digital Asset Tax Certainty Act, as introduced on September 14, 2026, would extend section 1091 to traded digital assets other than qualified US dollar stablecoins, for dispositions after that date. The Ways and Means Committee ordered an amended version reported, 38–5, on September 16, 2026; that text may differ. The bill is not law.

Choosing which units you sold

When the same coin was bought at different prices, the units treated as sold set the gain. Two methods apply under 26 CFR 1.1012-1(j):

Specific identification: you choose the units, by purchase date and time or price, no later than the time of the sale; in your own books for a self-custody wallet, or by telling the broker (a standing order counts) for broker-held units.
FIFO (first in, first out): the default if no identification is made in time; the earliest-acquired units are treated as sold first.

Since January 1, 2025, both methods work within one wallet or account: a sale from an exchange account cannot be matched to cheaper coins in a hardware wallet. Rev. Proc. 2024-28 offered a one-time safe harbor to allocate leftover basis to each wallet as of that date.

Because many brokers cannot yet accept instructions, Notice 2026-20 lets an identification or standing order recorded in your own books before the sale count for broker-held units through December 31, 2026. The relief does not change broker reporting, so a 2026 Form 1099-DA may show a different lot and basis than your records.

Illustrative example 4: three lots

One exchange account holds 3 ETH bought in three lots: lot A in March 2024 at $1,800, lot B in January 2025 at $3,300, and lot C in December 2025 at $4,000. In September 2026 the holder sells 1 ETH for $3,500.

Unit treated as sold	Basis	Gain or loss	Character
Lot A (FIFO default)	$1,800	$1,700 gain	Long-term
Lot B (specific identification)	$3,300	$200 gain	Long-term
Lot C (specific identification)	$4,000	$500 loss	Short-term

The same sale reports anywhere from a $1,700 gain to a $500 loss, a $2,200 spread. Specific identification generally defers gain rather than erasing it: lot A's low basis stays in the account until it is sold.

What gets reported, and where

What the broker sends: Form 1099-DA

Custodial platforms acting as brokers report sales on Form 1099-DA. Under the 2026 Form 1099-DA instructions and the 2025 Form 1040 instructions:

2025 sales: gross proceeds are reported; reporting basis was optional for the broker.
2026 sales: basis is also reported for covered units, those acquired on or after January 1, 2026 in a custodial account with that broker and held there until sold. Coins transferred in are noncovered, and their basis need not be reported.

The form shows what the broker knows, not what you owe: missing basis or a different lot match is corrected on Form 8949, and unreported sales still go on the return.

Decentralized platforms are outside these rules: a DeFi broker rule published December 30, 2024, was voided by Public Law 119-5 (April 10, 2025). Swaps there remain taxable, just without a form.

What you file

Form 1040 digital asset question: answer "Yes" if during the year you received digital assets as a reward, award or payment, or sold, exchanged or otherwise disposed of any, including by paying a fee in crypto. It must be answered whether or not a Form 1099-DA arrived.
Form 8949 and Schedule D: capital disposals. The 2025 Form 8949 instructions use boxes G, H and I (short-term) and J, K and L (long-term) for digital assets: 1099-DA with basis reported, 1099-DA without it, and no 1099-DA.
Schedule 1, line 8v: ordinary digital-asset income not reported elsewhere, such as staking, mining or forks. Wages go on line 1a; business income goes on Schedule C.

Frequently asked questions

Is converting crypto to a stablecoin a taxable event?

Yes. The IRS treats stablecoins as digital assets, so trading bitcoin for a dollar-pegged token is a crypto-to-crypto exchange, and gain or loss is measured at that moment. Later selling the stablecoin for about $1 usually produces little gain or loss, because its basis is close to $1.

What if my Form 1099-DA shows no cost basis?

The sale is still reported, using basis from your own records. On Form 8949 it goes under box H (short-term) or box K (long-term). This is common for 2025 forms and for coins transferred into an account from another wallet.

Does buying and holding crypto need to be reported?

No transaction arises. The 2025 Form 1040 instructions say holding, buying with dollars (including through apps such as PayPal and Venmo) or moving coins between your own wallets generally does not require a "Yes" to the digital asset question. The IRS digital assets page adds a condition: paying a transfer fee in crypto is a digital asset transaction.

What is my basis in crypto I received as a gift?

For figuring a gain, it is the giver's basis plus any gift tax paid. For figuring a loss, it is the lower of the giver's basis and the coin's value on the day of the gift. If the giver's holding period is documented, it carries over; without documentation of the giver's basis, the IRS FAQs set the basis at zero.

Can crypto losses reduce my other income?

Yes, within limits. Capital losses first offset capital gains; if losses exceed gains, up to $3,000 of the net loss ($1,500 if married filing separately) can be deducted against other income each year, and the rest carries forward to later years, according to IRS Topic 409.

A year-end records checklist

For each unit, the IRS FAQs point to the same records: date acquired, basis, and date and proceeds at disposal. Before December 31:

List every wallet and account that held crypto during the year, including ones now empty.
Export each platform's full history; a 1099-DA does not cover self-custody or DeFi activity.
Match transfers between your own wallets so they are not counted as sales, and log any fee paid in crypto as a disposal.
Record any standing order or specific identification before the sales it covers; for broker-held units after 2026, give it to the broker.
Log income (pay, staking, mining, airdrops) at its dollar value when received; that value becomes basis.
Note lots close to the one-year mark, and check the status of H.R. 10357 before selling at a loss and buying back within 30 days.

Where amounts are large or the history is tangled, a CPA or enrolled agent who handles digital assets can review the records before filing.