Crypto Taxes 101: What Counts as a Taxable Event, and What New IRS Reporting Rules Mean for You

For most of crypto's history, tax reporting has lagged behind trading volume. Millions of people bought, sold, and swapped digital assets with little third-party reporting to guide them. That is changing. The IRS has sharpened its guidance over the past decade, and the Treasury Department finalized new broker reporting rules that are being phased in starting with transactions in the 2025 tax year. Here is what the underlying rules actually say, in plain terms.

Crypto Is Property, Not Currency

Since IRS Notice 2014-21, the agency has treated virtual currency as property for federal tax purposes, similar to stocks or real estate, rather than as foreign currency. That single classification drives almost everything else: when you dispose of crypto, you generally realize a capital gain or loss equal to the difference between what you received and your cost basis (what you originally paid, plus fees).

What Actually Triggers a Taxable Event

• Selling crypto for U.S. dollars or another fiat currency
• Trading one cryptocurrency for another (e.g., ETH for SOL) — this is treated as a sale of the first asset
• Using crypto to buy goods or services, including NFTs
• Receiving crypto as payment for work, which is taxed as ordinary income at fair market value when received
• Earning crypto through staking rewards, mining, or certain airdrops, generally taxed as ordinary income when you gain control of it, per IRS Revenue Ruling 2019-24 and related guidance

What Is Not Taxable

• Buying crypto with cash and simply holding it
• Transferring crypto between wallets or exchanges you own and control
• Donating crypto to a qualified charity (subject to its own reporting rules)
• Gifting crypto below annual gift-tax reporting thresholds, though the recipient inherits your cost basis

Cost Basis and Reporting Forms

When you sell or trade crypto, you report the transaction on IRS Form 8949 and summarize totals on Schedule D, which flow into your Form 1040. The 1040 itself includes a direct yes-or-no question asking whether you received, sold, exchanged, or otherwise disposed of a digital asset during the year — a question every filer must answer, even those who did not transact in crypto.

Your gain or loss depends on which cost-basis method you use. First-in-first-out (FIFO) is the default many exchanges apply, but taxpayers can use specific identification if they keep adequate records showing exactly which units were sold, which may allow methods like highest-in-first-out (HIFO) to minimize taxable gains. Consistency and documentation matter: the IRS has stated that from 2025 onward, taxpayers generally must track cost basis on a wallet-by-wallet or account-by-account basis rather than pooling all holdings together, a shift from earlier informal practice. Anyone unsure how this affects existing holdings should review current IRS guidance or consult a tax professional before filing.

The New Form 1099-DA

Under final regulations issued by Treasury and the IRS, brokers — a term that covers many centralized exchanges and certain other digital asset platforms — must report customers' digital asset sales and exchanges on a new information return, Form 1099-DA. Reporting of gross proceeds is being phased in starting with transactions occurring in the 2025 tax year, meaning affected taxpayers should expect to receive these forms, and the IRS will receive matching data, beginning with returns filed in 2026. Cost-basis reporting by brokers is being phased in on a later timeline. The rules are narrower for decentralized platforms and self-custodied wallets, where reporting obligations remain more limited. Taxpayers remain responsible for accurate reporting regardless of whether they receive a 1099-DA.

No Wash-Sale Rule — For Now

Stocks and securities are subject to the wash-sale rule, which disallows a loss deduction if you buy a substantially identical asset within 30 days before or after selling at a loss. Because crypto is classified as property rather than a security, that rule currently does not apply to digital assets, according to current IRS guidance. This has allowed some investors to sell crypto at a loss for tax purposes and immediately repurchase it. Lawmakers have repeatedly proposed closing this gap, so the rule's absence should not be treated as permanent.