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For U.S. federal income tax purposes, the IRS treats cryptocurrency and other digital assets as property. Selling, swapping, or spending crypto can therefore create a capital gain or loss; receiving digital assets as payment or certain rewards may instead create ordinary income. Your tax result depends on what happened, your adjusted basis, and your records—not just on whether an exchange sent you a tax form.
This guide covers U.S. federal rules for individual investors, based on IRS guidance available October 7, 2026. State, local, and non-U.S. rules are outside its scope and should be checked separately.
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How does the IRS treat cryptocurrency?
The IRS treats digital assets as property for federal income tax purposes, so general property transaction principles apply. For an investor, the key questions are whether you received a digital asset as income or disposed of an asset you held, and what the asset’s adjusted basis was when you disposed of it.
A disposition may produce a capital gain or loss. A receipt may instead be taxable as ordinary income, depending on the circumstances. These categories have different reporting paths, so classify each transaction rather than treating every crypto-related entry as the same kind of income.
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Which crypto transactions may be taxable?
| Activity | Federal tax question | Typical category |
|---|---|---|
| Sell digital assets for U.S. dollars | Compare the amount realized with the adjusted basis of the units sold. | Capital gain or loss |
| Exchange one digital asset for another | The asset given up may have been disposed of; determine its amount realized and adjusted basis. | Potential capital gain or loss |
| Use digital assets to pay for property or services | The asset used may have been disposed of. The transaction’s value and basis matter. | Potential capital gain or loss |
| Receive digital assets as payment for services or certain rewards | Determine whether the receipt is taxable income and which rules apply to that specific activity. | May be ordinary income |
| Move assets between wallets or accounts you own | Establish that the transfer was between your own accounts and reconcile both sides. | Different from a sale or exchange; do not assume it is a taxable disposition |
A transfer between your own wallets is not the same fact pattern as selling or exchanging an asset. The IRS says fees for transfers between a taxpayer’s own wallets are not disposition transaction costs under the cited guidance. Keep records that show who controlled each wallet and where the units went; investigate a transfer whose ownership or destination is unclear.
Mining, staking, airdrops, forks, gifts, decentralized-finance activity, and business transactions can involve fact-specific questions. Do not assume that all receipts or activities in one of these categories receive identical treatment.
How do you calculate a crypto gain or loss?
For a sale of a capital asset, the basic calculation is:
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsCapital gain or loss = amount realized − adjusted basis
For a sale for dollars, amount realized generally starts with the cash received. It may also include the fair market value of services received to effect the sale, and is reduced by qualifying transaction costs allocable to the disposition. The IRS lists transaction or gas fees, transfer taxes, and commissions as examples of transaction costs. Whether a particular fee qualifies depends on its connection to the disposition.
For example, suppose an investor bought units for $1,000, including acquisition costs, then sold them for $1,400 and paid a hypothetical $20 qualifying sale fee. The amount realized would be $1,380 and the gain would be $380, assuming no other basis adjustment. This illustration shows the arithmetic only; use the actual costs and transaction facts from your records.
A gain is not the same as the amount of tax owed. Your overall federal tax result depends on the applicable rules and your full return. A loss may reduce taxable gains under applicable rules, but the calculation still needs to be supported by accurate basis and transaction records.
How do you determine crypto cost basis?
For purchased virtual currency, IRS FAQ guidance describes basis as the amount spent to acquire it, including fees, commissions, and other acquisition costs measured in U.S. dollars. Adjusted basis is that starting amount after applicable adjustments.
If you dispose of only some units, your records need to support which units were sold and their basis. IRS guidance describes specific-unit identification as requiring adequate records identifying the units, or the transaction information for units in a particular account, wallet, or address. Apply the current identification rules to contemporaneous records; do not simply choose units after the fact because they produce a preferred result.
When assets move among exchanges, wallets, or accounts, reconcile the movement so you do not mistake an internal transfer for a sale or lose the acquisition history. A broker’s report may help, but it may not establish the basis of the particular units you disposed of.
What forms do individual investors use?
For capital gains and losses, individuals generally calculate digital asset transactions on Form 8949 and summarize them on Schedule D, following the current instructions and any reporting steps that apply to broker-provided Form 1099-DA information.
Non-business ordinary income from digital assets is reported on the applicable individual return—Form 1040, 1040-SS, or 1040-NR—or Schedule 1, as relevant. The right line or schedule depends on the income and the taxpayer’s return type. Capital dispositions and ordinary income receipts should not be combined into one undifferentiated figure.
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What is Form 1099-DA, and will it show your basis?
Form 1099-DA is a broker information return for reportable digital asset proceeds and, in some cases, basis. For relevant broker transactions beginning on or after January 1, 2025, broker reporting applies under the IRS rules. The form is information for preparing a return, not a complete transaction ledger or a substitute for the investor’s own records.
For 2025 transactions, the IRS said most statements would not include basis. Brokers must furnish 2025 Form 1099-DA information by February 17, 2026, but investors may still need to calculate basis from their own records to determine gain or loss. Compare the statement’s proceeds and transaction details with your records before preparing the return.
For transactions after 2025, the 2026 instructions describe mandatory gross-proceeds reporting and mandatory basis reporting for covered digital assets, with voluntary basis reporting for noncovered assets. They also describe optional reporting methods for qualifying stablecoins and specified NFTs. These are broker-reporting rules; they do not remove the need to check your own transaction history or reporting obligations.
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Yes, if you had taxable digital asset income, gains, or losses. The IRS says taxpayers must report them whether or not they receive Form 1099-DA or another information statement. A taxpayer might not receive a form because an activity is outside the reporting rules or involves a foreign broker, but the absence of a form does not by itself determine whether a transaction is reportable.
Use your transaction records to identify taxable activity and calculate the result. Do not treat a 1099-DA as the only source of reportable transactions—or the lack of one as evidence that no reporting is required.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How should you organize records before filing?
Digital asset activity can be spread across exchanges, wallets, and accounts. The IRS advises tax professionals to reconcile those records, apply appropriate basis methods, and categorize income events accurately. A practical record set should include:
- Exchange statements and transaction histories, plus wallet activity for addresses you control.
- Acquisition and disposition dates, quantities, and U.S.-dollar amounts.
- Fees and commissions, with enough detail to distinguish acquisition costs, disposition costs, and wallet-to-wallet transfer fees.
- Records linking transfers between your own accounts, including the sending and receiving wallets and the transaction identifiers where available.
- Information supporting the basis of units sold, including how specific units were identified when applicable.
- Records of receipts that may be income, categorized separately from asset sales or exchanges.
Reconcile totals across accounts and investigate missing basis, unmatched transfers, and differences between your records and a broker statement before filing. Tax software may help with calculation and reconciliation, but the IRS guidance does not endorse a particular product; the completeness and accuracy of the underlying data still matter.
How should you answer the digital asset question?
Federal individual returns include a Yes/No digital asset question. The IRS describes it as asking whether, at any time during the tax year, you received a digital asset 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.
Read the exact question and instructions for your filing year and return type. Merely holding cryptocurrency does not, by itself, match the listed receipt or disposition activities described by the IRS. Answer based on what you actually did during the tax year, not simply on whether you owned an account or received a tax form.
What these federal rules do not cover
This explanation addresses U.S. federal income tax treatment for individual investors. It does not establish how a state, locality, or another country treats digital assets. Check the rules that apply where you file, and consult a qualified tax professional for complex transactions or uncertainty about how a specific fact pattern should be classified. IRS forms and instructions can change, so use the current filing-year materials when preparing a return.
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