Crypto Tax Guide

Crypto is property, so every disposition is a taxable event

The IRS does not treat cryptocurrency as foreign currency. It treats it as property -- like a stock or a piece of equipment. That single classification drives everything else. You realize a capital gain or loss every time you dispose of a digital asset, and "dispose" is broader than most people think:

- Selling crypto for US dollars - Swapping one crypto for another (BTC to ETH, ETH to a stablecoin -- all taxable) - Spending crypto to buy goods or services - Using crypto to pay a contractor or employee

In each case your gain is the fair market value you received minus your cost basis (what you paid, in USD, including fees). Simply buying crypto with dollars and holding it is NOT taxable, and moving coins between your own wallets is NOT a disposition. But the day you trade or spend it, the clock stops and the gain or loss is locked in.

Cryptocurrency is property for federal tax purposes, so disposing of it -- by sale, swap, or spending -- realizes a capital gain or loss measured against your USD cost basis. Buying and holding, and transfers between your own wallets, are not taxable. (IRS Notice 2014-21; IRC Section 1221 (capital asset); IRS Digital Assets guidance)

Holding period decides the rate: short-term ordinary vs long-term 0/15/20%

How long you held the asset before disposing of it determines the tax rate on any gain.

- Held one year or less (short-term): the gain is taxed at your ordinary income rate -- the same brackets as wages, up to 37%. - Held more than one year (long-term): the gain qualifies for preferential rates of 0%, 15%, or 20%, depending on your total taxable income.

The holding period starts the day after you acquire the asset and ends the day you dispose of it. Because a coin-to-coin swap resets the holding period on the new asset, frequent traders rarely qualify for long-term rates.

On top of the capital gains rate, higher earners also owe the 3.8% Net Investment Income Tax (NIIT) on crypto gains once modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). That makes the real top federal rate on a long-term crypto gain 23.8%, and a short-term gain can reach 40.8%.

Crypto held more than one year gets long-term capital gains rates of 0%, 15%, or 20%; one year or less is taxed at ordinary rates. The 3.8% Net Investment Income Tax applies on top once income crosses $200,000 single / $250,000 married filing jointly. (IRC Section 1(h) (capital gains rates); IRC Section 1222 (holding period); IRC Section 1411 (Net Investment Income Tax))

Mining and staking are ordinary income at fair market value when received

Earning crypto is taxed twice over its life: once as income when you receive it, and again as a capital gain or loss when you later dispose of it.

Mining: the fair market value of coins on the date you receive them is ordinary income (Notice 2014-21). If you mine as a trade or business -- not a hobby -- that income also carries 15.3% self-employment tax, and you report it on Schedule C. Mining equipment and electricity become deductible business expenses.

Staking: staking rewards are included in gross income at their fair market value in the year you gain "dominion and control" over them -- generally when you can sell or transfer them (Rev. Rul. 2023-14). You cannot defer that income until you sell.

In both cases the FMV you reported as income becomes your cost basis in those coins. When you later sell them, you only pay capital gains tax on the change in value since receipt -- you are not taxed on the same dollars twice.

Mined and staked crypto is ordinary income at fair market value when received. The FMV reported becomes the cost basis for the later sale. Mining run as a business also owes 15.3% self-employment tax. (IRS Notice 2014-21 (mining); Rev. Rul. 2023-14 (staking rewards); IRC Section 1401 (self-employment tax))

Hard forks and airdrops: the dominion-and-control test

A hard fork on its own is not a taxable event if you do not receive any new units. But when a hard fork is followed by an airdrop, or you otherwise receive new tokens you control, the fair market value at receipt is ordinary income (Rev. Rul. 2019-24).

The key question is dominion and control: do you actually have the tokens in a wallet you can use? If your exchange does not support the forked coin and you never receive units, there is no income and no basis. If you do receive them, that FMV is both your income and your starting cost basis in the new tokens.

Promotional airdrops, "learn and earn" rewards, and referral bonuses follow the same rule: ordinary income at FMV on receipt.

New tokens from a hard fork or airdrop are ordinary income at fair market value once you have dominion and control over them. A hard fork with no receipt of units produces no income. (IRS Rev. Rul. 2019-24)

No like-kind exchange: crypto-to-crypto swaps are fully taxable

Before 2018 some traders argued that swapping one cryptocurrency for another was a tax-deferred "like-kind exchange" under Section 1031. That argument is dead. The Tax Cuts and Jobs Act limited Section 1031 to real property starting in 2018, and the IRS has confirmed in published FAQs that crypto-to-crypto trades do not qualify for deferral.

Every swap -- BTC to ETH, ETH to a stablecoin, one token to another inside a DeFi protocol -- is a disposition of the coin you gave up, taxed on the gain since you acquired it. This is the rule people are most surprised by, because no dollars ever hit their bank account. The gain is real and reportable regardless.

Crypto-to-crypto exchanges are not like-kind exchanges and cannot defer gain. Section 1031 has applied only to real property since 2018, so every swap is a taxable disposition. (IRC Section 1031(a)(1) (limited to real property by TCJA, 2018); IRS Digital Assets FAQs)

The wash-sale rule does not apply to crypto -- for now

The wash-sale rule (Section 1091) disallows a loss when you sell a "stock or security" and buy it back within 30 days. Cryptocurrency is property, not a security, so the rule does not currently apply to typical crypto tokens. That means you can sell a coin at a loss to harvest the deduction and rebuy it immediately, keeping your position while banking the loss -- something stock investors cannot do.

Two cautions. First, Treasury's 2024-2025 guidance confirms that tokenized securities representing underlying stock or debt can be subject to wash-sale rules, even though ordinary crypto is not. Second, several bills in Congress would extend the wash-sale rule to digital assets. Treat this as a live risk, not a permanent feature. Capital losses you do book offset capital gains first, then up to $3,000 per year ($1,500 if married filing separately) against ordinary income, with the rest carried forward indefinitely.

The wash-sale rule covers securities, not property, so it does not currently apply to most crypto -- you can harvest a loss and repurchase immediately. Pending legislation could change this. Net capital losses deduct up to $3,000/year against ordinary income, with carryforward. (IRC Section 1091 (wash sales -- securities only); IRC Section 1211(b) ($3,000 capital-loss limit); IRC Section 1212 (carryforward))

Cost basis methods and the new per-wallet rule (effective 1 January 2025)

Your gain depends entirely on your cost basis, and the rules for tracking it changed materially for 2025.

Default method: FIFO (first-in, first-out) -- the IRS assumes you sold your oldest coins first unless you specifically identify otherwise. Specific Identification is allowed if you can document, at the time of sale, exactly which units (by acquisition date and basis) you are disposing of. Spec ID usually produces a better result but demands clean records.

The big change: Revenue Procedure 2024-28 ended "universal" or global basis tracking. From 1 January 2025 you must track cost basis wallet by wallet (or account by account) -- you can no longer pool every coin across all platforms into one basis lake. The IRS provided a one-time safe harbor to reasonably allocate your pre-2025 unused basis across your wallets. If you held crypto going into 2025 and did not make that allocation, this is the single most important cleanup item to discuss with a preparer.

Cost basis defaults to FIFO; Specific Identification is allowed with contemporaneous records. From 1 January 2025, basis must be tracked per wallet/account rather than universally, under a safe harbor for allocating pre-2025 basis. (Treas. Reg. Section 1.1012-1 (basis identification); IRS Rev. Proc. 2024-28 (per-wallet allocation safe harbor, effective 2025))

NFTs can be 'collectibles' taxed at up to 28%

Not every NFT is taxed like an ordinary token. Under IRS Notice 2023-27, the IRS uses a "look-through" analysis: if the asset an NFT represents would be a collectible under Section 408(m) -- art, gems, metals, stamps -- the NFT is a collectible too.

That matters because long-term gains on collectibles are taxed at a maximum 28% rate, higher than the 20% top rate on ordinary long-term capital assets. A short-term NFT gain is still taxed at ordinary rates. So a profitable art-NFT flip held over a year is capped at 28%, while a utility token held the same period tops out at 20%. Most fungible cryptocurrencies are not collectibles; the 28% question is specific to NFTs whose underlying asset is collectible in nature.

NFTs whose underlying asset is a collectible are taxed as collectibles -- long-term gains capped at 28% rather than the usual 20% top rate. Short-term NFT gains are taxed at ordinary rates. (IRS Notice 2023-27; IRC Section 408(m) (collectibles definition); IRC Section 1(h)(4) (28% collectibles rate))