Crypto Taxes: How Buying, Selling, Trading, and Earning Cryptocurrency Affects Your Return

Starting with the 2025 tax year, two major changes apply:

• Rev. Proc. 2024-28 requires wallet-by-wallet cost basis tracking (no more universal pooling)
• Crypto brokers must issue Form 1099-DA to both you and the IRS, reporting gross proceeds.

High earners may also owe 3.8% NIIT when MAGI exceeds $200K for single filers / $250K for MFJ filers.

If you sold, earned, exchanged, or used cryptocurrency to purchase goods or services this tax year, it could affect your tax return. The tax consequences depend on what type of transaction occurred and whether it triggered a taxable event.

The IRS treats cryptocurrency as property, not currency. As a result, certain crypto transactions may result in capital gains, ordinary income, or reporting obligations. This guide explains how crypto taxes work and helps you identify the specific rules that apply to your situation.

Not sure where you fit? Use the sections below to navigate to the page that matches your crypto activity.

What Changed for the 2025 Tax Year

Two major regulatory changes affect every crypto investor filing returns for 2025:

1. Wallet-by-Wallet Cost Basis Tracking (Rev. Proc. 2024-28)

Starting January 1, 2025, the IRS no longer allows "universal" cost basis tracking — the method most investors used to pool identical crypto units across multiple wallets and exchanges into one cost basis queue.

You must now track cost basis separately for each wallet or account. If you hold Bitcoin on Coinbase, Kraken, and a hardware wallet, each has its own cost basis pool. When you sell, the cost basis method (FIFO default, or specific identification if elected at time of sale) applies within that single wallet or account — not across all holdings.

Safe harbor: Rev. Proc. 2024-28 provided a one-time safe harbor for reallocating pre-2025 basis across wallets. That deadline has passed — if you didn't complete the allocation, consult a tax professional about remediation.

For foundational cost basis concepts (FIFO, specific identification, average cost), see our Stock Cost Basis guide — the same methods apply to crypto, now on a per-wallet basis.

2. Form 1099-DA: Crypto Broker Reporting Begins

Crypto exchanges and brokers must now issue Form 1099-DA for 2025 transactions, reporting gross proceeds to both you and the IRS.

• 2025 transactions: Gross proceeds only
• 2026 transactions and beyond: Gross proceeds AND cost basis

This means the IRS now has matching data on your crypto activity — similar to how Form 1099-B works for stocks. Expect CP2000 notices for unreported crypto starting with 2025 tax year returns.

What this means for you: Keep your own records to verify broker-reported data. Form 1099-DA may not reflect transfers between wallets, DeFi activity, or off-exchange transactions — you remain responsible for complete reporting.

Crypto Taxable vs Non-Taxable Events at a Glance

Key Terms

Before diving into cryptocurrency taxes explained in plain English, here are a few key concepts that show up repeatedly in crypto tax rules.

Cost Basis
The original value of your crypto assets for tax purposes. This is typically what you paid, including certain fees. Cost basis determines your capital gain or loss when you sell crypto.

Fair Market Value
The fair market value is the value of digital assets in U.S. dollars at the time of the transaction. It is used to calculate taxable income, gross proceeds, and digital asset proceeds.

Taxable Event
A transaction that must be reported and may result in taxes owed. Not all cryptocurrency transactions are taxable.

Capital Gain or Loss
The difference between your cost basis and the amount realized in a sale or exchange. Gains and losses may affect your tax bill.

Short-Term Capital Gains
Gains on crypto held for one year or less. These are generally taxed at ordinary income tax rates based on your income tax bracket (10%- 37%).

Long-Term Capital Gains
Gains on crypto held for more than a year. Long-term capital gains may be taxed at different rates (0%-20%) than short-term gains.

Holding your crypto for more than one year may reduce your tax rate, but only if it results in a gain.

Ordinary Income
Income is taxed at standard income tax rates. Some crypto income, such as mining rewards or payments in virtual currency, may be treated as ordinary income.

Net Investment Income Tax (NIIT) An additional 3.8% tax on investment income (including crypto capital gains) when Modified Adjusted Gross Income exceeds 200,000 single / 250,000 MFJ. For full calculation mechanics, see our Capital Gains Tax on Stocks guide.

Buying & Selling Cryptocurrency

Buying and selling crypto is one of the most common areas where crypto taxes apply.

Buying Crypto With Cash

Buying virtual currency with U.S. dollars is generally not taxable. You do not owe income tax simply for purchasing crypto assets.

However, the amount you pay becomes your cost basis. That basis matters later if you sell, trade, or spend the crypto.

Learn more here:

• Do I owe taxes when buying crypto?

Selling Crypto for Cash

Selling cryptocurrency for cash is typically taxable. When you sell:

• You compare the sale price to your cost basis
• The difference is a capital gain or loss
• The holding period determines whether it is short-term or long-term

If you sell for more than your basis, you may owe capital gains tax. If you sell for less than you paid, you may have capital losses that can offset other capital gains and losses.

Important tax planning note: Unlike stocks, cryptocurrency is not currently subject to the wash sale rule (IRC §1091 applies to "stock or securities"). This means you can sell crypto at a loss and immediately repurchase the same coin while still claiming the loss — a unique advantage for crypto tax-loss harvesting. See our Wash Sale Rule guide for the underlying mechanics.

Exception: Spot Bitcoin and Ether ETFs (which are securities) ARE subject to wash sale rules. If you sold an ETF at a loss and repurchased within 30 days, the loss is disallowed.

Related pages:

• Do I owe capital gains tax when selling crypto?
• Short term vs long term capital gains on crypto

Trading and Spending Crypto: When It’s Taxable

Not all crypto activity involves cash. Some exchange transactions and property transactions still create tax implications.

Trading Crypto for Crypto

Swapping one cryptocurrency for another is usually a taxable event, even if no cash changes hands. The fair market value of the crypto received is typically used to determine your capital gain or loss on the crypto given up.

Learn more:

• Are crypto-to-crypto trades taxable?

Spending Crypto

Using cryptocurrency to purchase goods or services is typically treated as a sale for tax purposes. If the fair market value at the time of spending differs from your cost basis, a gain or loss may result.

Details here:

• Do I owe taxes when spending crypto?

Transfers & Contributions

Some cryptocurrency transactions do not automatically create taxable income. Context matters.

Transferring Crypto Between Wallets

Transferring crypto between wallets or accounts you own is generally not taxable. There is no sale or exchange, and no gain or loss is realized.

That said, maintaining clear records is critical for future crypto tax reporting.

Gifting Crypto

Gifting crypto may not create a capital gain at the time of the gift. However, gift tax rules and basis transfer rules may apply.

More details:

• What are the tax rules for gifting crypto?

Donating Crypto

Donating cryptocurrency to a qualified tax-exempt charity may be eligible for a tax deduction, depending on the circumstances. The tax treatment can depend on how long the crypto was held and its fair market value.

Learn more:

• Can you deduct donated crypto?

Crypto Income: Mining, Staking, Airdrops & Getting Paid in Crypto

Not all crypto activity is about capital gains. Some situations may result in ordinary income.

Getting Paid in Crypto

If you receive cryptocurrency as payment for services, it may be considered taxable income at its fair market value on the date received. This may increase your taxable income for the tax year.

More here:

• Is being paid in crypto taxable?

Mining Crypto

If you mine cryptocurrency, the fair market value of the virtual currency on the date you receive it must be included in gross income. If mining qualifies as a trade or business, it may also be subject to self-employment tax.

If mining constitutes a trade or business, additional considerations, such as self-employment income and self-employment tax, may apply.

Source: IRS Notice 2014-21

Learn more:

• How is mining crypto taxed?

Staking Rewards

Under Revenue Ruling 2023-14, staking rewards are includible in gross income in the tax year the taxpayer gains dominion and control over the rewards.

Details:

• Are staking rewards taxable?

Airdrops and Forks

If you receive new cryptocurrency from a hard fork followed by an airdrop and you have dominion and control over the new units, the fair market value of the new units is included in gross income at that time.

Source: Rev. Rul. 2019-24

Learn more:

• How are crypto airdrops and forks taxed?

How to Report Crypto on Your Tax Return (and Claim Losses)

Crypto tax reporting is about matching the right transaction to the right category.

Before you even report gains or income, Form 1040 for Tax Year 2025 includes a digital asset question. It asks whether you received, sold, exchanged, or otherwise disposed of any digital asset during the year. You must answer this question accurately, even if you don’t owe tax.

Reporting Crypto Sales

Capital gains and losses from crypto sales are reported on Form 8949 and summarized on Schedule D (Form 1040). You must report the date acquired, date sold, proceeds, cost basis, and resulting gain or loss.

Learn more:

• How do I report crypto taxes?
• How to report crypto sales correctly

Capital Losses and Limitations

If you have realized capital gains, losses may offset them. If losses exceed gains, additional limitations may apply under general tax principles.

Lost or Stolen Crypto

For Tax Year 2025, personal casualty and theft losses are deductible only if attributable to a federally declared disaster. Most personal crypto theft or loss events are not deductible.

Source: IRS Pub 547

More details:

• Can I deduct lost or stolen crypto?

Recordkeeping and Broker Reporting

Accurate records are essential for cryptocurrency tax reporting — and more important than ever under new rules.

What You Must Track

For every crypto transaction:

• Date and time acquired, and date and time disposed
• Fair market value at the time of each transaction
• Cost basis (tracked per wallet under Rev. Proc. 2024-28), including unused cost basis for digital assets units that have not been sold yet.
• Transaction type (sale, swap, spend, income, transfer)
• Wallet or exchange where the transaction occurred
• Transaction fees
• Tracking unused basis is vital for tax reporting. If you do not account for the unused basis, the IRS assumes a zero basis for any remaining assets held in crypto wallets, resulting in taxable gains, especially when crypto is gifted or transferred to beneficiaries.

What Brokers Report (Starting 2025)

Crypto exchanges will issue Form 1099-DA for reportable transactions. However, third-party forms may not capture:

• Transfers between wallets you own
• DeFi protocol interactions
• Off-exchange peer-to-peer transactions
• Complete cost basis (for 2025, only gross proceeds are required)

You remain responsible for complete reporting, even if your exchange doesn't capture every transaction.

Practical Advice

• Download and save exchange data regularly — platforms may not retain records indefinitely
• Use crypto tax software to aggregate data across wallets and exchanges
• Maintain your own records independent of any platform
• Compare Form 1099-DA data against your own records and resolve discrepancies before filing

Crypto taxes don’t have to feel like decoding the blockchain. Once you understand what triggers a taxable event, the rest is recordkeeping and reporting.

Not sure where you fall? Start with the Bought or Sold Crypto hub, and let’s make this simple.

This article is for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws and dollar thresholds referenced are current as of the last reviewed date shown above and may change. For guidance on your specific situation, consult a qualified tax professional.