Crypto Tax Basics
The IRS treats crypto as property, so every sale, trade, or purchase can trigger a taxable gain.
TL;DR
- The IRS taxes crypto as
property, so disposing of it is a taxable event. - Trading one coin for another is a
disposal, even with no cash out. - Hold over a year for
longTermrates and report every trade.
Crypto Is Property
Taxed Like StockCapital gains rules apply to every disposal of crypto.
Notice 2014-21: crypto = propertyEach Coin SeparateBitcoin, Ethereum, and others are tracked on their own.
Per-asset gain and lossEarned Crypto Is IncomePay, mining, staking, and airdrops are ordinary income.
Taxed at value when receivedThen Taxed AgainSelling earned coins later triggers a separate gain.
Income now, capital gain at saleTaxable or Not
Sell for CashConverting crypto to dollars realizes a gain or loss.
Taxable disposalTrade Coin for CoinA swap counts as selling one and buying the other.
BTC to ETH = taxableSpend ItBuying goods with crypto is a disposal of property.
Coffee in crypto = taxableJust Hold or TransferBuying, holding, or moving between your wallets is not taxed.
Hold or self-transfer = no taxRates and Basis
Under a YearShort-term gains are taxed at your ordinary rate.
10%-37%Over a YearLong-term gains get the lower capital gains rates.
0%, 15%, or 20%Cost BasisWhat you paid, including fees, sets your gain.
Proceeds - cost basis = gainPer-Wallet RuleSince 2025, track basis account by account.
No more universal poolingReporting Crypto
The 1040 QuestionAnswer the digital asset question at the top of your return.
Check yes if you disposed of anyForm 8949List each taxable sale, trade, or spend with dates.
One line per disposalSchedule DTotals from 8949 flow here as net gain or loss.
Short-term and long-term totalsOrdinary IncomeMining, staking, and airdrops go on Schedule 1.
Value on the day receivedTips
- Moving coins between your own wallets is not a
taxableEvent, so keep records that show a transfer rather than a sale. - Track
costBasisper wallet or account, since the IRS ended universal basis pooling starting in 2025.
Warnings
- US exchanges now send the IRS a
1099-DAfor your sales, so unreported crypto gains are easy to spot. - Spending crypto on everyday purchases is a
disposalthat triggers a gain or loss, not a tax-free swipe.
In Practice
See why trading one coin for another creates a taxable gain with no cash in hand.
You bought 1 Bitcoin for $30,000. Eight months later, when it is worth $45,000, you swap all of it for Ethereum.
- The swap is a disposal of the Bitcoin at $45,000.
- Gain: $45,000 - $30,000 = $15,000.
- Held under a year, so it is a short-term gain.
- Taxed at your ordinary rate, say 24%: $15,000 x 24% = $3,600.
You owe about $3,600 on the swap even though you received no cash.
Every trade, spend, or swap is a taxable disposal, so set tax aside.
FAQ
As property, under Notice 2014-21, not as currency. That means every time you dispose of crypto, by selling, trading, or spending it, you calculate a capital gain or loss just like selling a stock. Buying and holding is not taxed; the tax comes when you let go of the coin.
Yes. Swapping Bitcoin for Ethereum is treated as selling the Bitcoin for its dollar value and immediately buying Ethereum. You owe tax on the Bitcoin's gain at the moment of the swap, even though no cash touched your bank account. This surprises many new traders.
For each unit: the date and price you bought (your cost basis) and the date and value when you disposed of it. Starting in 2025, you must track basis per wallet or account rather than pooling it all together. Export your transaction history from each exchange every year, since reconstructing it later is painful.
Yes. You are legally required to report every taxable crypto event whether or not a form arrives. Exchanges are now issuing Form 1099-DA for sales, and the IRS gets a copy, but the obligation to report was always yours. Mining, staking, and airdrops count as ordinary income when received.