Crypto Taxation in United States

What does the IRS say crypto is for tax purposes?

The Internal Revenue Service established the foundational rule in Notice 2014-21: virtual currency is treated as property for US federal income tax purposes, not as foreign currency. That single classification carries through every downstream calculation. Gain or loss on the disposal of crypto is computed the same way as gain or loss on the sale of stock or other capital property. Holding-period rules determine long-term versus short-term character, and basis is tracked at the per-unit level in US dollars at the time of acquisition. The Infrastructure Investment and Jobs Act of 2021 later codified a statutory definition of "digital asset" as "any digital representation of value recorded on a cryptographically secured distributed ledger," expanding the scope beyond the earlier convertible-virtual-currency framing and giving Treasury authority to write broker-reporting regulations [SC1].

What counts as a taxable disposal?

Because crypto is property, any change in ownership or deemed exchange triggers gain or loss recognition. The IRS FAQ guidance (updated through January 2025) confirms the following events are taxable disposals:

• Sale for fiat currency. Selling BTC, ETH, or any digital asset for US dollars (or foreign currency) is a taxable disposition. Gain or loss equals proceeds minus adjusted basis.
• Crypto-to-crypto exchange. Swapping Bitcoin for Ethereum is treated as a sale of Bitcoin at fair market value, with immediate gain or loss recognition. The acquired Ethereum takes a basis equal to its FMV at the time of exchange (IRS FAQ Q16-17) [SC2]. The Tax Cuts and Jobs Act of 2017 confined Section 1031 like-kind exchange treatment to real property, foreclosing that argument for crypto-to-crypto swaps after 2017.
• Payment for goods or services. Using crypto to pay a merchant or contractor is a disposal of a capital asset at its FMV on the date of payment. Gain or loss is the difference between that FMV and the adjusted basis of the crypto used.
• Receipt as compensation, mining, or staking. Crypto received as wages, self-employment income, mining proceeds, or staking rewards is ordinary income at FMV on the date received. Basis of the received crypto equals that same FMV.

Non-taxable events include purchasing crypto with fiat (no gain until disposal), transferring crypto between wallets with the same beneficial owner, and gifting crypto (the donor recognizes no gain; the recipient takes the donor's basis and holding period under IRC SS 1015).

How are short-term and long-term gains taxed?

Holding period for crypto follows IRC SS 1223: the period begins the day after acquisition and ends on the date of disposal. Crypto held one year or less produces short-term gain or loss taxed at ordinary marginal income tax rates. Crypto held more than one year produces long-term gain or loss taxed at the preferential rates set by IRC SS 1(h). The 2025 long-term capital gains brackets are [SC3]:

Short-term gains are taxed at ordinary income rates of 10%, 12%, 22%, 24%, 32%, 35%, or 37% depending on taxable income. High-income filers are also subject to the 3.8% Net Investment Income Tax (NIIT) under IRC SS 1411, making the effective top rate 23.8% on long-term gains and 40.8% on short-term gains for filers subject to NIIT. The wash-sale rules of IRC SS 1091 do not currently apply to cryptocurrency because crypto is not a "security" under the statutory definition; a filer who sells at a loss and immediately repurchases the same digital asset may generally claim the loss [SC2].

How are staking rewards and mining income taxed?

Rev. Rul. 2023-14 settled the IRS position on staking: crypto received from proof-of-stake validation is gross income at fair market value in the taxable year the taxpayer gains dominion and control over the rewards. This applies whether the taxpayer stakes directly or through a custodial exchange. The FMV recognized at receipt becomes the basis for the staked tokens; a later disposal triggers a separate capital-gain calculation measured from that basis [SC4].

Mining rewards follow the same ordinary-income-at-receipt rule. If mining or staking is conducted regularly and continuously with a profit motive, the activity is likely a trade or business subject to self-employment tax; hobby-level activity avoids SE tax but deductions for associated expenses are no longer available as miscellaneous itemized deductions after the Tax Cuts and Jobs Act.

Hard-fork airdrops are ordinary income at FMV on the date the holder gains dominion and control over the new cryptocurrency, per Rev. Rul. 2019-24 [SC1].

What is Form 1099-DA and what does it cover?

Form 1099-DA (Digital Asset Proceeds From Broker Transactions) is the new information return from custodial digital-asset brokers - centralized exchanges, custodial wallet providers, and digital asset kiosks. Treasury finalized the broker-reporting framework in 2024. The phase-in calendar is:

• Tax year 2025 (forms issued by February 17, 2026): Brokers report gross proceeds for dispositions. Most 2025 forms show proceeds only; taxpayers must calculate their own basis [SC5].
• Tax year 2026: Brokers must also report cost basis for assets acquired through the broker on or after January 1, 2026. Revenue Procedure 2024-28 provides transition guidance for allocating unused basis as of January 1, 2025.
• Transition relief: Notices 2024-56 and 2025-33 confirm penalty relief for good-faith filing during 2025. Decentralized-finance protocols remain excluded from the broker definition pending further guidance (Notice 2024-57).

Each Form 1099-DA disposition flows to Form 8949 (Part I for short-term, Part II for long-term), with totals rolling to Schedule D and then to Form 1040. Every US filer must also answer the digital-asset question on the front page of Form 1040: "At any time during the tax year, did you (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?" The question is required regardless of taxable activity; answering No when Yes is correct may be treated as a misrepresentation in subsequent compliance proceedings.

For the complete US capital-gains rate framework, see the United States country overview. A credentialed practitioner familiar with digital-asset reporting can reconcile 1099-DA discrepancies, establish specific-identification lot elections, and determine whether mining or staking activity rises to trade-or-business status - consult the US tax-pros directory to find one.