The IRS treats cryptocurrency as property. Selling, trading, or spending it triggers a capital gain or loss reported on Form 8949 and Schedule D, while crypto earned from staking, mining, or as payment is ordinary income at its value when you receive it. Starting in 2025, you must track cost basis wallet by wallet.

Crypto is property, not currency

Since 2014 (Notice 2014-21), the IRS has treated digital assets as property. Every disposal is a taxable event: selling crypto for dollars, swapping one coin for another, or spending it on goods or services all realize a capital gain or loss — even a coin-to-coin trade where no cash changes hands. Simply buying and holding, or moving coins between your own wallets, is not taxable. Every Form 1040 also asks a direct digital-asset question that must be answered truthfully.

The two ways crypto is taxed

Almost everything in crypto tax falls into one of two buckets:

  • Capital gains and losses — from selling, trading, or spending. Reported on Form 8949 and Schedule D. Held one year or less is short-term (ordinary rates up to 37%); held more than a year is long-term (0%, 15%, or 20%). Holding period is the single biggest lever you control.
  • Ordinary income — crypto you earn. Staking rewards, mining, airdrops, and crypto received as payment are income at fair market value when received, generally reported on Schedule 1 (or Schedule C if it's a business).

For staking specifically, Rev. Rul. 2023-14 confirms rewards are income when you gain "dominion and control" — the ability to sell or transfer them — not necessarily when the protocol generates them. That value becomes your cost basis, so a later sale produces a separate capital gain or loss on only the change since then.

The 2025 change: wallet-by-wallet cost basis

This is the biggest recent shift. Under Rev. Proc. 2024-28, effective January 1, 2025, the long-standing "universal" method — pooling cost basis across all your wallets — is gone. You must now track basis separately for each wallet or account: when you sell from a wallet, you use the basis of units held in that same wallet.

  • FIFO (first-in, first-out) is the default.
  • Specific Identification — including HIFO or LIFO — is allowed only if you identify the specific lot before the sale; Notice 2025-7 gives some transitional relief for 2025.
  • Returns still using the universal method after 1/1/2025 are exposed to IRS adjustment.

Form 1099-DA: read it, don't trust it blindly

Beginning with 2025 transactions, custodial brokers issue the new Form 1099-DA (furnished to you in early 2026). In its first year it generally reports gross proceeds only — the cost-basis field is often blank or marked "noncovered," especially for assets moved between wallets or platforms. Cost-basis reporting phases in for 2026 transactions.

Do not prepare your return from the 1099-DA alone. The IRS's automated matching system flags mismatches, so you should reconcile every form against your own wallet and exchange records and document your basis. Form 8949 now includes checkboxes for whether a transaction was reported on a 1099-DA.

A planning advantage: the wash-sale rule (for now)

Because crypto is property rather than a security, the wash-sale rule of IRC §1091 currently does not apply. You can sell a coin at a loss to bank the deduction and rebuy it immediately — something stock investors must wait 31 days to do. Two caveats: Congress has repeatedly proposed extending the wash-sale rule to digital assets, and purely artificial round-trips can still be challenged under the economic-substance doctrine.

Crypto on foreign exchanges

If you hold crypto on a non-U.S. platform, the FBAR generally does not yet apply to the crypto itself, but FATCA (Form 8938) reporting may, and the income-tax rules above always do. See our FBAR guide for where the lines are.

Why records and reconciliation matter

Most real-world crypto returns go wrong on basis, not rates. Transfers between wallets break lot-tracking, exchanges close or lose history, and missing basis means the IRS can presume a very low or zero basis — inflating your taxable gain. Keep records for at least six years, and if you have activity across multiple wallets, exchanges, or DeFi protocols, reconciliation is where a CPA earns their keep.

Primary sources

This guide is general information for educational purposes and is not tax advice for your specific situation. Tax rules change and individual facts vary — please consult a qualified tax professional before acting.