Before it asks about your salary, the 2025 Form 1040 asks about crypto. Just under your name, address and filing status, the IRS wants to know whether at any time during the year you received a digital asset as a reward or payment, or sold, exchanged or otherwise disposed of one. Yes or No. That box is where crypto taxes in the US start for most people, and many readers get it wrong in both directions.
Buying bitcoin with dollars and holding it is a No. Moving coins from Coinbase to your own hardware wallet is a No as well. Swapping ether for a stablecoin, paying a network fee in ETH, receiving staking rewards or getting paid in USDC are all Yes. The rule underneath has not changed since 2014: the IRS treats crypto as property, so you owe tax when you dispose of it at a gain or when you earn it, not when you buy it.
What did change is how much the IRS can see. Since 1 January 2025 custodial brokers must report the gross proceeds of your sales on a new Form 1099-DA, and from 1 January 2026 they also report cost basis for coins bought in their custody. Basis must now be tracked wallet by wallet. What follows are the federal rules as of October 2026, with the rates for the 2025 and 2026 tax years and the forms that go with them.
It assumes you know how a gain is computed. If not, our lesson on how to calculate crypto capital gains works through FIFO and specific identification with numbers, and the basics of crypto taxation explains the principles shared by most countries. One point is enough here: your gain is the dollar amount you receive minus your basis, which is usually what you paid including fees.
The IRS treats crypto as property, not money
The starting point is IRS Notice 2014-21, published in March 2014. Its first answer is short: “virtual currency is treated as property” for federal tax purposes. The same notice says it is not a currency that can produce foreign currency gain or loss, the regime that applies to euros or yen.
Since then the vocabulary has widened. The IRS now speaks of digital assets, which its frequently asked questions on digital asset transactions (FAQ 47 to 111, last updated 29 June 2026) define as any digital representation of value recorded on a cryptographically secured distributed ledger or similar technology. That covers bitcoin and ether, but also stablecoins such as USDC and USDT, and NFTs. A stablecoin pegged to the dollar is still property: selling one for dollars is a disposal, even if the gain is usually a few cents.
The IRS keeps two FAQ pages. The older one, on virtual currency transactions, generally applies to transactions completed before 1 January 2025. The newer one applies from 2025 and carries the wallet-by-wallet and broker rules described below. When you search online, check which page an article quotes.
Which crypto transactions are taxable in the US
Two kinds of events create tax. A disposal (sale, swap or spending) produces a capital gain or loss. A receipt of new crypto as pay or reward produces ordinary income at its dollar value on the day you get it. Everything else is neutral until you dispose of the coins.
| Event | Taxable? | How it is taxed |
|---|---|---|
| Selling crypto for dollars | Yes | Capital gain or loss: proceeds minus basis |
| Swapping one coin for another, including a stablecoin | Yes | Treated as a sale of the coin you give up, at the fair market value of what you receive |
| Paying for goods or services with crypto | Yes | Treated as a sale at the value of what you buy |
| Paying a network fee in crypto | Yes | The coins used for the fee are disposed of (FAQ 97) |
| Being paid in crypto for work | Yes | Ordinary income at fair market value when received |
| Mining and staking rewards | Yes | Ordinary income when you gain control of the coins |
| New coins from a hard fork, airdrops | Yes | Ordinary income when you can transfer or sell them |
| Buying crypto with dollars | No | Sets your basis |
| Holding crypto, even if its price rises | No | Nothing to report until you dispose of it |
| Moving coins between your own wallets or accounts | No | Non-taxable (FAQ 81), except any coins used to pay the fee |
| Receiving a genuine gift | No | The recipient carries over the donor’s basis |
| Donating to a qualifying charity | No gain | Deduction possible if you itemize |
The swap line is the one that surprises people. Trading ETH for SOL on an exchange, or for a memecoin on a decentralized exchange, is a sale of the ETH at its dollar value at that moment. If the ETH cost you $1,800 and was worth $3,000 at the time of the trade, you have a $1,200 gain, even though no dollar ever reached your bank account.
The digital asset question on Form 1040
The question sits on page 1 of Form 1040 and also appears on Forms 1040-SR, 1040-NR, 1041, 1065, 1120, 1120-S and 709. For 2025 it has two parts: part (a) covers digital assets received as a reward, award or payment for property or services; part (b) asks whether you did “sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)”. Everyone who files must tick one box, including people who own no crypto at all.
The IRS digital assets page (updated 2 September 2026) gives the cases. You answer Yes if during the year you received crypto as pay, as a reward or award, from mining, staking or similar activities, or from an airdrop tied to a hard fork; or if you sold, exchanged or otherwise disposed of crypto, which includes paying a transfer fee with it. You answer No if you only held crypto, bought it with real currency, or moved it between wallets or accounts you control.
A Yes does not mean you owe tax. A sale at a loss is a Yes and produces a deduction. The box is there so that nobody can later say they did not know crypto had to be reported, and a false No on a signed return is a much more serious problem than a small error in a gain.
Crypto taxes in the US: capital gains rates for 2025 and 2026
The rate depends on how long you held the coins. Held one year or less, the gain is short-term and taxed like wages at your ordinary rate, from 10% to 37%. Held more than one year, it is long-term and taxed at 0%, 15% or 20%. The holding period starts the day after you acquired the asset, according to IRS Tax Topic 409, and each lot has its own clock.
The thresholds below are taxable income, after the standard deduction or itemized deductions. For 2025 the One Big Beautiful Bill Act raised the standard deduction to $15,750 for single filers, $23,625 for heads of household and $31,500 for married couples filing jointly. For 2026 the IRS set it at $16,100, $24,150 and $32,200 in Rev. Proc. 2025-32.
| Long-term rate | Single 2025 | Single 2026 | Married filing jointly 2025 | Married filing jointly 2026 |
|---|---|---|---|---|
| 0% | up to $48,350 | up to $49,450 | up to $96,700 | up to $98,900 |
| 15% | up to $533,400 | up to $545,500 | up to $600,050 | up to $613,700 |
| 20% | above $533,400 | above $545,500 | above $600,050 | above $613,700 |
Heads of household reach the end of the 0% band at $64,750 for 2025 and $66,200 for 2026. Short-term gains follow the ordinary brackets: for a single filer in 2026, 10% up to $12,400, 12% up to $50,400, 22% up to $105,700, 24% up to $201,775, 32% up to $256,225, 35% up to $640,600 and 37% above (Rev. Proc. 2025-32). For 2025 the 22% band for a single filer ran from $48,475 to $103,350.
Two extra rules apply to everyone. The net investment income tax adds 3.8% on investment income, gains included, once modified adjusted gross income passes $200,000 for a single filer or $250,000 for a married couple filing jointly; those thresholds are not indexed to inflation. And net capital losses offset only $3,000 of other income per year ($1,500 if married filing separately), with the rest carried forward without a time limit.
One example for a single filer in 2026
Take a single filer whose taxable income from salary is $50,000 in 2026, after the $16,100 standard deduction. She sells bitcoin with a $10,000 gain. Gains are stacked on top of other income. If she held the coins more than a year, her ordinary income already passes the $49,450 end of the 0% band, so the whole gain is taxed at 15%: $1,500. If she held them eleven months, the first $400 falls in the 12% bracket and the remaining $9,600 in the 22% bracket, for $2,160.
Lower her salary income to $30,000 and the picture changes: a $10,000 long-term gain ends at $40,000 of taxable income, inside the 0% band, and costs nothing in federal tax. That is legal and common among retirees and students, and it explains why the date of a sale can matter more than its size. This is the arithmetic of the brackets, not a reason to sell or hold.
Form 1099-DA, Form 8949 and Schedule D
What the 1099-DA shows, and what it leaves out
Form 1099-DA is the crypto equivalent of the 1099-B that stock brokers have sent for decades. Custodial platforms such as Coinbase or Kraken, certain hosted wallet providers, crypto kiosks and some payment processors must file it for sales they carry out for customers, with a copy to you. According to the IRS instructions for Form 1099-DA, brokers report gross proceeds for transactions from 1 January 2025 and, from 1 January 2026, cost basis for covered securities: coins acquired after 2025 and held in a custodial account at that broker.
The first forms, for 2025, therefore show what you received but usually not what you paid, since basis reporting was voluntary that year. Reporting those proceeds with a basis of zero would tax the whole sale price as gain. Use your own records to fill in the cost. Even from 2026, coins bought before 2026, or bought elsewhere and transferred in, stay noncovered and the broker may leave the basis blank.
Some flows are not on the form at all. Under Notice 2024-57 brokers do not yet have to report staking, lending, wrapping, liquidity provision and some other transactions, and staking rewards are not shown. Brokers may also use optional thresholds: sales of qualifying stablecoins up to $10,000 a year and specified NFTs up to $600 a year can be reported in aggregate or not at all. None of this changes your side. FAQ 108 says you report taxable digital asset transactions “regardless of the amount or whether you receive a payee statement or information return”.
Which Form 8949 box to use
Each disposal goes on Form 8949, which feeds Schedule D. Digital assets have their own boxes since the 2025 form: G, H and I for short-term transactions and J, K and L for long-term ones. Box G or J is for sales on a 1099-DA that shows basis; H or K for a 1099-DA without basis; I or L when you received no 1099-DA, which is the case for trades on a decentralized exchange or from a self-custody wallet. The instructions say not to use boxes C and F for digital assets, the boxes many filers used before.
Column (g) takes adjustment codes when the form is wrong or incomplete: B when the basis shown is incorrect, E for selling costs not reflected on the form. Then the totals move to Schedule D, where short-term and long-term results are netted and the $3,000 loss limit applies. Crypto received as income does not go on Form 8949; it is reported as wages, business income on Schedule C, or other income.
Wallet-by-wallet basis since 1 January 2025
Until 2024 many people computed gains across all their holdings at once, picking lots from any wallet or exchange. Final regulations under section 1012 ended that for dispositions on or after 1 January 2025: basis is now tracked separately for each wallet or account. If you hold 1 BTC on an exchange and 1 BTC in a self-custody wallet, a sale on the exchange can only use the lots held on the exchange.
The transition is governed by Rev. Proc. 2024-28, a one-time safe harbor. It let taxpayers allocate their unused basis, the cost of coins still held, to the wallets and accounts they held at the start of 1 January 2025, either unit by unit or by a global rule applied the same way everywhere. The allocation had to be made before the earlier of the first sale, disposition or transfer of that type of asset on or after 1 January 2025, or the due date of the 2025 return including extensions. For most people both dates have now passed; anyone who never made it should review their records with a tax professional.
Inside each wallet the default order is first in, first out. You may instead choose specific lots. In a self-custody wallet you must identify the units sold “no later than the date and time of the sale, disposition, or transfer” (FAQ 82) and keep records that prove it. At a custodial broker, transactions from 1 January 2026 require the instruction to be given to the broker by the time of the sale, often as a standing order; for 2025, Notice 2025-7 let customers rely on a standing order kept in their own books. If a broker offers only one method, that method counts as your standing order after 2025 (FAQ 89).
A small trap: writing your seed phrase on two pieces of paper, or importing the same keys into two apps, does not merge two wallets into one for tax purposes (FAQ 96).
Gas fees and transaction costs
Fees follow simple rules that many tax tools apply badly. Costs of buying crypto with dollars are added to its basis. Costs of selling reduce the amount realized. When you swap one digital asset for another, the costs reduce the amount realized on the asset you give up but cannot be added to the basis of the asset you receive (FAQ 72).
If you pay the fee in crypto, which is how gas fees work on Ethereum, the coins spent on the fee are themselves disposed of and can produce a small gain or loss (FAQ 97). Fees for a pure transfer between your own wallets are not treated as digital asset transaction costs (FAQ 53): they do not raise the basis of the coins moved, but the ETH or SOL burned to pay them is still a disposal. On an active wallet, those small disposals add up to dozens of lines.
Staking, mining, airdrops and crypto paid as wages
Pay and freelance work
Crypto received for work is income at its fair market value in dollars on the day you receive it. An employer paying wages in crypto must withhold and pay payroll taxes as for cash wages. A freelancer paid in USDC or BTC reports it as business income and owes self-employment tax, as Notice 2014-21 already said. The value you include becomes your basis for a later sale.
Mining
Mined coins are gross income at their fair market value on the date of receipt (Notice 2014-21, Q&A 8). If mining is a trade or business rather than a hobby, the net income is also subject to self-employment tax, and expenses such as electricity and hardware are claimed on Schedule C.
Staking rewards under Rev. Rul. 2023-14
Revenue Ruling 2023-14 settled the IRS position on staking in 2023. A cash-method taxpayer who stakes on a proof-of-stake network includes the fair market value of the rewards in gross income “in the taxable year in which the taxpayer gains dominion and control over the validation rewards”, meaning when they can sell, exchange or otherwise dispose of them. The same applies when staking through an exchange. The ruling’s own example: a taxpayer owns 300 units, stakes 200 of them, and receives 2 units of reward, which are income at their value on the day they become available.
Some taxpayers argue that newly created tokens should be taxed only when sold, and Congress is looking at the question: the PARITY Act described below would let stakers and miners defer that income for up to five years. As of October 2026 that is a proposal. The rule in force is income at receipt, valued in dollars at that date and time, with that value becoming the basis of the rewards. Exchanges do not report staking rewards on the 1099-DA, so your own record of each reward is the only one.
Airdrops and hard forks
A soft fork, which changes the rules without creating a new coin, is not income. A hard fork that gives you no new coins is not income either. When a hard fork followed by an airdrop puts new coins under your control, they are ordinary income at their fair market value when you can transfer them (FAQ 105), and that value is their basis. The IRS digital assets page lists an airdrop tied to a hard fork among the cases that call for a Yes on Form 1040. The IRS has not issued a separate FAQ on promotional airdrops unrelated to a fork; the general income rules point the same way, and tokens you never claimed and cannot move are a grey area to discuss with a preparer.
Gifts, donations and inheritance
Receiving crypto as a genuine gift is not income. Your basis for a later gain is the donor’s basis; for a loss it is the lower of the donor’s basis and the value at the date of the gift. Without documentation of the donor’s basis, your basis is zero (FAQ 76), so ask for the purchase records along with the coins. Your holding period includes the donor’s.
Giving crypto is not a sale, but a donor who gives one person more than the annual gift tax exclusion in a year ($19,000 for 2026, under Rev. Proc. 2025-32) files Form 709, the gift tax return. Actual gift tax is rare because of the lifetime exemption, set at $15,000,000 for 2026 by Rev. Proc. 2025-32 after the 2025 law. A donation to a qualifying charity produces no gain, and for crypto held more than one year the deduction is generally its fair market value, with an appraisal needed for larger gifts.
Inherited crypto is not covered by a dedicated IRS crypto FAQ; the general estate rules apply, so heirs should have the value at the date of death established by a professional.
Losses and the wash sale rule in 2026
A loss on crypto is a capital loss like any other. It offsets capital gains first, then up to $3,000 of other income a year, with the excess carried forward. A coin that becomes worthless still needs a disposal or clear evidence of worthlessness before you claim it, which is why many people sell a dead token for a fraction of a cent.
The wash sale rule of section 1091 denies a loss on stock or securities bought back within 30 days before or after the sale. Because crypto is property and not a security for this purpose, the rule does not apply to bitcoin or ether held directly as of October 2026, which lets investors realise a loss and buy back at once. It does apply to securities that hold crypto, such as shares of a spot bitcoin ETF, and Form 8949 keeps code W for wash sales.
That gap may close. The PARITY Act, H.R. 8899, introduced in the House on 19 May 2026 by Representative Max Miller (Republican, Ohio) with Representatives Steven Horsford, Suzan DelBene and Mike Carey as original cosponsors, would extend the wash sale rule to digital assets, add the staking and mining deferral mentioned above, and ask the Treasury to study a de minimis exemption for small payments. Thomson Reuters reported its introduction on 28 May 2026. We found no committee vote, floor vote or enactment as of 25 October 2026, so it remains a proposal; check its status before relying on either side of the rule.
DeFi, self-custody and the broker rule Congress overturned
On 27 December 2024 the Treasury and the IRS released final regulations that would have treated some front-end operators of decentralized exchanges as brokers required to send 1099-DA forms. Congress disapproved them under the Congressional Review Act: the House voted on 11 March 2025, the Senate on 26 March, and Public Law 119-5, from House Joint Resolution 25, was approved on 10 April 2025. As a result, a trade on Uniswap or another DeFi protocol produces no form for you.
It is still taxable. A swap on a decentralized exchange is a sale like any other, and you report it on Form 8949 in box I or L. For lending, liquidity pools and wrapping, the IRS has not published a dedicated rule; Notice 2024-57 only postpones broker reporting, it does not make those transactions tax-free. Whether depositing tokens into a pool is itself a disposal is debated, and active DeFi users usually need software that reads the blockchain plus a preparer who knows the area.
Crypto on foreign exchanges: FBAR and Form 8938
A US person with foreign financial accounts worth more than $10,000 in total at any time in the year files an FBAR with FinCEN. For crypto, FinCEN Notice 2020-2 of December 2020 says a foreign account holding only virtual currency is not reportable on the FBAR for now, and that FinCEN intended to propose a change. We found no final rule changing that position as of October 2026. A foreign account that also holds dollars, euros or securities is reportable on the usual terms. FinCEN’s withdrawal on 5 October 2026 of two other crypto proposals, on unhosted wallets and mixing, did not concern the FBAR.
Form 8938, filed with the tax return under FATCA, has higher thresholds. The IRS comparison of Form 8938 and FBAR requirements (updated 19 September 2026) gives them: for an unmarried taxpayer or a married person filing separately living in the US, more than $50,000 on the last day of the year or $75,000 at any time; for a married couple filing jointly in the US, $100,000 and $150,000; for taxpayers living abroad, $200,000 and $300,000, or $400,000 and $600,000 when filing jointly. Neither that page nor the Form 8938 instructions (still the November 2021 revision) mention digital assets. The IRS has not stated clearly whether crypto held at a foreign exchange is a specified foreign financial asset, and practitioners disagree. With a large balance on a non-US platform, ask a professional; reporting when unsure usually costs less than the penalties for missing a form.
State taxes on crypto
Federal tax is only part of the bill. Most states with an income tax start from your federal adjusted gross income, so crypto gains and income flow into the state return and are taxed at the state’s ordinary rates, with no lower long-term rate in many states. States without a personal income tax do not tax them. Washington is a special case: it has no wage income tax but levies a 7% excise tax on long-term capital gains above a standard deduction ($270,000 for 2024, $278,000 for 2025, indexed each year), and from tax year 2025 gains above $1 million are taxed at 9.9%, according to the Washington Department of Revenue. Its list of exempt assets (real estate, retirement accounts and a few others) does not include crypto, so a long-term bitcoin gain is in scope. Check your own state’s revenue department, since residence on the date of sale usually decides which state taxes the gain.
US citizens living abroad
The United States taxes its citizens and green card holders on their worldwide income wherever they live, as the IRS page on US citizens and resident aliens abroad explains. An American in Paris or Milan who sells bitcoin on a European exchange reports the gain on Form 1040 exactly as a resident would, and also pays the local tax: in France the regime in our guide to crypto taxes in France, in Italy the one in our guide to crypto taxes in Italy.
Filers abroad get an automatic two-month extension to 15 June to file, with a further extension to 15 October on Form 4868, but interest on tax due still runs from April. The foreign earned income exclusion, $132,900 for 2026, covers wages and self-employment earnings for work done abroad; capital gains on crypto are investment income, not earned income, so it generally does not shelter them, although crypto received as pay for work abroad can qualify as earned income. Double taxation is mainly relieved through the foreign tax credit on Form 1116 for income tax paid to the other country. Tax treaties help apportion that credit, but they rarely exempt a US citizen from US tax.
Add the FBAR and Form 8938 rules above, which apply with the higher thresholds for people living abroad. A later lesson covers the United Kingdom, including the case of Americans living there.
Records, deadlines and common mistakes
The 2025 return was due on 15 April 2026, or 15 October 2026 with an extension. The 2026 return, the first with broker-reported basis for coins bought from 2026, is due in April 2027. Keep, for every acquisition and disposal, the date and time, the number of units, the dollar value, the fees, the wallet or account and the transaction hash. Exchange exports can disappear when a platform closes, so download them each year.
Preparers see the same errors every spring:
- Treating a coin-to-coin swap as a non-event because no dollars came out.
- Forgetting staking rewards because no 1099-DA shows them.
- Reporting 1099-DA gross proceeds with no basis, which taxes the whole sale price.
- Answering No to the digital asset question after paying gas fees in ETH.
- Mixing lots across wallets after 1 January 2025.
- Assuming a loss can be harvested and bought back forever, when Congress is discussing a wash sale rule for crypto.
One last point concerns scams rather than tax. The IRS warns that letters with a QR code asking you to register your crypto on a “compliance portal” are fraudulent: it does not require registration of digital assets. Real IRS contact starts with mail that you can check against irs.gov, never with a link to connect a wallet.
If your situation includes business activity, large DeFi positions or years of unreported trades, an enrolled agent or CPA who handles crypto can file amended returns before the IRS writes first. This lesson is general information, not tax advice.
