Property, not currency
The IRS says that for US tax purposes digital assets are considered property, not currency, and the definition covers any digital representation of value recorded on a blockchain or similar technology. Disposing of one is a sale of property: the gain or loss is what you receive minus your basis, and the basis of property is its cost, generally measured in US dollars. Hold the asset one year or less before disposing of it and the result is short-term; longer, and it is long-term, as with stocks.
What is taxable and what is not
| Answers yes to the Form 1040 digital asset question (IRS) | Answers no (IRS examples) |
|---|---|
| Selling for US dollars or other currency | Buying with US dollars and holding |
| Exchanging for another digital asset | Holding in a wallet with no transactions during the year |
| Using as payment for property or services | Transferring between your own wallets or accounts, unless a fee was paid in digital assets |
| Receiving as a reward, award or payment, including from mining, staking and similar activities |
The question on Form 1040 asks whether at any time during the year you received digital assets as a reward, award or payment for property or services, or sold, exchanged or otherwise disposed of a digital asset or a financial interest in one.
Three transactions, worked out
| Transaction | Value received | Basis | Gain or loss |
|---|---|---|---|
| Buy a coin for $2,000 with dollars | none | $2,000 | none: buying is not a disposal |
| Swap it for another coin worth $3,500 | $3,500 | $2,000 | $1,500 gain; the new coin's basis is $3,500 |
| Spend part of a holding on a purchase priced at $1,200 | $1,200 | $900 | $300 gain |
If the coin in the second row was held more than a year, the $1,500 is long-term and for 2026 falls in the 0 percent range up to $49,450 of taxable income for a single filer and $98,900 joint, then 15 percent, per Rev. Proc. 2025-32; the capital gains tax calculator works the year's tax with the gain included, and ROI calculator turns buy and sell prices into a yearly return before tax.
Where it goes on the return
| Kind of transaction | Reported on (IRS) |
|---|---|
| Sales and exchanges of digital assets held as capital assets | Form 8949, Sales and Other Dispositions of Capital Assets |
| Income from forks, staking and mining | Form 1040, Schedule 1, additional income |
| Digital assets received as wages | Form 1040, as wages |
| Payments to an independent contractor | Schedule C |
Brokers now report too. The IRS says brokers must report gross proceeds on Form 1099-DA for transactions effected on or after January 1, 2025, and basis for certain transactions effected on or after January 1, 2026. Keep your own records of what you paid and when; the guide how long to keep tax records covers how long to hold on to them, and W-2 vs 1099 what changes when crypto arrives as contractor pay.
This guide follows the IRS digital assets page and the 2026 rates in Rev. Proc. 2025-32. State taxes and specialized cases, such as lending, liquidity pools or NFTs, are outside it.
Frequently asked questions
How is cryptocurrency taxed?
As property, not currency. The IRS says digital assets are considered property for US tax purposes, so selling, exchanging or spending them produces a capital gain or loss measured against their basis, generally what you paid in US dollars. Holding them one year or less makes the gain short-term, taxed as ordinary income; longer makes it long-term, at the lower capital gains rates. Receiving them as pay or as mining or staking rewards is income.
Is swapping one crypto for another taxable?
Yes. The IRS lists disposing of a digital asset for another digital asset among the transactions that answer yes to the digital asset question on Form 1040, and each such exchange is a sale of the first asset at its value at the time. A swap of a coin bought for $2,000 into another coin worth $3,500 is a $1,500 gain even though no dollars changed hands.
What is not taxable?
The IRS gives buying digital assets with US dollars and holding them, and holding them in a wallet without any transactions during the year, as examples that answer no to the question. Transferring digital assets between your own wallets or accounts is generally not a reportable event either, unless you paid a transaction fee with digital assets, which is itself a disposal.
What is Form 1099-DA?
The new form on which brokers report digital asset transactions. The IRS says brokers must report gross proceeds for transactions effected on or after January 1, 2025, and must report basis on certain transactions effected on or after January 1, 2026. The form helps with reporting, but the taxpayer still reports every sale and exchange on Form 8949.
How is staking or mining income reported?
The IRS says income from forks, staking and mining goes on Form 1040, Schedule 1, as additional income; digital assets received as wages are reported as wages; and payments to an independent contractor go on Schedule C.
Sources
- IRS: Digital assets (digital assets are property, not currency; the digital asset question on Form 1040 and the yes and no examples; selling, exchanging, spending and receiving as payment or from mining and staking; transfers between your own wallets; Form 8949; short-term and long-term holding periods; basis as cost; Schedule 1 and Schedule C income; Form 1099-DA gross proceeds from January 1, 2025 and basis from January 1, 2026)
- IRS Rev. Proc. 2025-32, section 4.03 (the 2026 long-term capital gains thresholds: 0 percent up to $49,450 single and $98,900 joint, 15 percent up to $545,500 and $613,700)
General information based on the sources above, not tax, legal or financial advice.