Strategy Snapshot
Crypto is taxed as property, not currency. Disposing of it (selling, swapping, or spending) triggers capital gain or loss, while earning it (staking, mining, airdrops, or getting paid) is ordinary income. New broker 1099-DA reporting and required per-wallet basis tracking mean the IRS now sees far more than it used to.
Selling for cash, trading one coin for another, and buying goods with crypto are all taxable events. Crypto-to-crypto swaps surprise people most, there is no 'like-kind' shelter for them.
Staking rewards, mining, airdrops, and crypto received as payment are ordinary income at fair market value when you gain control, and that value also becomes your cost basis.
Brokers began issuing Form 1099-DA, and basis must be tracked per wallet or account. Reconstructed, account-by-account records are no longer optional.
Crypto attracts exactly the kind of independent, growth-minded investor who hates surprises from the IRS, and yet crypto produces more avoidable tax surprises than almost any other asset. The reason is a single classification decision: the IRS treats crypto as property, not currency. Once you internalize that, most of the rules follow logically, and the most common mistakes become obvious.
Crypto is property. Every time you dispose of property, you have a taxable event, including the swap from one token to another that never touched a dollar.The one rule that explains the rest
Disposals: Where Capital Gains Happen
You trigger a capital gain or loss whenever you dispose of crypto. That includes more transactions than most people expect:
- Selling crypto for U.S. dollars
- Trading one crypto for another (a crypto-to-crypto swap)
- Spending crypto to buy goods or services
- Using crypto to pay someone
The gain or loss is the difference between the value at disposal and your cost basis (what you paid, plus fees). Hold for more than a year and it is long-term capital gain at favorable rates; a year or less and it is short-term, taxed as ordinary income.
Earning Crypto: Ordinary Income
Receiving crypto, rather than buying it, is generally ordinary income at its fair market value when you gain control:
- Staking and mining rewards
- Airdrops and many hard forks
- Crypto received as payment for goods, services, or wages
- Many DeFi yield and reward distributions
That income value does double duty: it is taxed now as income, and it becomes your cost basis. When you later sell those coins, you measure gain or loss from that basis, which is exactly why dropping the income step leads to paying tax twice on the same coins.
NFTs and DeFi: The Murky Edges
| Activity | Usual treatment |
|---|---|
| Buying an NFT with crypto | Taxable disposal of the crypto used |
| Selling an NFT | Capital gain or loss; some NFTs may be collectibles (up to 28% rate) |
| Lending / liquidity pools | Often disposals and income; facts-specific |
| Wrapping / bridging tokens | Potentially a disposal; unsettled |
DeFi is the least settled area in crypto tax. Liquidity provision, lending, wrapping, and bridging can each involve disposals or income, and the guidance is thin. When in doubt, the conservative position is to treat token movements as potential disposals and keep meticulous records.
The Rules Just Got Stricter
Two changes make 2025 a turning point for crypto compliance:
- Form 1099-DA. Crypto brokers began issuing
Form 1099-DAreporting your transactions to the IRS, the same way stock brokers issue 1099-Bs. Gross proceeds reporting started first, with cost basis reporting phasing in. The practical effect: the IRS now receives third-party data it never had before. - Per-wallet basis tracking. Taxpayers are now required to track cost basis per wallet or account, rather than pooling everything together. A safe harbor allowed a one-time allocation of existing basis across accounts as of the start of 2025.
A Loss Rule Worth Knowing
Because crypto is property and not a security, the wash sale rule does not currently apply. That means you can sell a position at a loss to harvest the deduction and rebuy it immediately, something stock investors cannot do. This is a genuine, if narrow, planning advantage. Congress has repeatedly proposed closing it, so treat it as current-law-for-now and confirm it each year before relying on it.
The International Layer
Crypto held on foreign exchanges adds a reporting dimension that catches globally minded investors off guard. FinCEN has signaled that foreign crypto accounts will need to be reported on the FBAR, and crypto held in a foreign account alongside other assets can already pull you over reporting thresholds. If you use offshore platforms, the question is not just income tax, it is foreign information reporting too.
When to Seek Help
A handful of trades on a single U.S. exchange, with a clean 1099-DA, is usually manageable with good software. The case for help grows fast with high transaction volume across multiple wallets, staking or DeFi income, prior years that were never reported, or any foreign exchange exposure. Crypto cases are won or lost on records, and reconstructing basis across years and wallets after the fact is the expensive way to do it. Building clean tracking now is far cheaper than untangling it under an IRS notice later.
Last updated: 2026