Cryptocurrency taxes 101: what to know come tax season

If you bought, sold, traded, or spent cryptocurrency during the year, you almost certainly have something to report. The rules are less vague than they were a few years ago, and the larger exchanges now hand transaction data straight to the IRS. The earlier you understand what is taxable, the less of a scramble filing becomes.

You do not need to be an accountant to get this right. You do need records, and a clear picture of which transactions the IRS treats as taxable. That is where to start.

How the IRS treats crypto

For federal tax, cryptocurrency is property, not currency. That one classification, set out in IRS Notice 2014-21, drives almost everything else. Because crypto is property, it follows the same capital gains rules that apply to stocks and other investments.

When you dispose of crypto, you have a capital gain or loss equal to the difference between what you received and what you originally paid for it. How that gain is taxed depends on how long you held the asset before disposing of it.

If your losses for the year are larger than your gains, you can deduct up to $3,000 of the net loss against ordinary income, or $1,500 if you are married filing separately. Anything past that carries forward to future years, so a bad year is not wasted.

Cost basis, and why it decides your tax

Your cost basis is what you paid to acquire the crypto, including the fee to buy it. Pay $9,000 for a coin plus a $30 exchange fee, and your basis is $9,030. Sell later for $11,000, and your gain is $1,970, not the full $11,000.

Basis is the number the IRS is most likely to be missing, and it is the number that brings your tax down. Buying and holding creates no tax by itself. The tax is realized only when you dispose of the asset, and at that point the gain or loss is fixed regardless of how the price moved in between. If you bought at $10,000 and sold at $11,000, your gain is $1,000 even if the price dipped to $6,000 along the way.

For every purchase, keep the acquisition date, the amount, the USD value at the time, and any fees. Without basis records, you can end up paying tax on money you never made.

Every disposal is a taxable event

Selling crypto for dollars is the obvious taxable event. It is not the only one. A disposal, and with it a possible tax bill, happens whenever you do any of the following.

• Sell crypto for cash. The plain case, and the one people expect.
• Trade one crypto for another. Swapping ETH for SOL is a sale of the ETH, even though no dollars touched your bank account.
• Spend crypto on goods or services. Buying a laptop with Bitcoin is treated as selling that Bitcoin at its value on the day you spend it.

Some moves are not taxable: buying crypto with dollars and holding it, moving crypto between wallets you own, and donating it to a qualified charity. Transfers between your own accounts are not sales, but log them anyway so your basis follows the coins and does not get lost.

Some crypto is income, not capital gain

Not every crypto question runs through capital gains. When you receive crypto as payment or as a reward, its dollar value on the day you receive it is ordinary income, taxed like wages. That covers getting paid in crypto for work, mining rewards, most staking rewards, and many airdrops.

That same received value becomes your cost basis going forward. Receive $200 of a token as a staking reward and you report $200 of income now, and $200 is your basis if you sell it later. Report capital gains and losses on Form 8949 and Schedule D. Report crypto income on Schedule 1, or on Schedule C if it is part of a business you run.

Exchanges now report to the IRS

For years, crypto had no equivalent of the Form 1099 a stock broker sends, and the job of reporting fell entirely on the taxpayer. That has changed. Starting with the 2025 tax year, custodial exchanges are required to send you and the IRS a Form 1099-DA showing your gross proceeds, with cost basis reporting phasing in for later years.

Two cautions. A 1099-DA may show your proceeds without your basis, which can make your gains look far larger than they were, so your own records still decide the real number. And it covers custodial exchange activity only. Self-custody wallets, on-chain swaps, and DeFi will not appear on it, and reporting those is still on you.

There is also a digital-asset question near the top of Form 1040. You have to answer it, yes or no, whether or not you owe anything.

One rule currently works in a holder's favor. The wash-sale rule that stops stock investors from claiming a loss when they rebuy the same position within 30 days does not presently apply to crypto, because the IRS treats crypto as property rather than a security. Proposals to close that gap come up often, so confirm the treatment for the specific year you are filing. Informational, not tax advice.

Getting ready before you file

The filing itself is mostly bookkeeping. The work is in assembling clean records before you sit down with a return.

1. Pull your full history. Export every transaction from each exchange and wallet you used during the year.
2. Match each disposal to its basis. Line up every sale, trade, and spend with what you paid and when you acquired it.
3. Separate income from gains. Rewards, staking, and payments are ordinary income; sales and trades are capital gains or losses.
4. Reconcile against your 1099-DA. Check the exchange figures against your own records and note anywhere they disagree.
5. Get help if it sprawls. Several platforms, DeFi, or missing basis is the point where crypto tax software or a specialist pays for itself.

Crypto tax is more about records than about the tax code. People who keep clean records through the year file in an afternoon. People who do not spend the spring reconstructing trades from memory.