Crypto and FIRE: moon math meets the tax code

By Tom, CPA · Updated October 25, 2026

TL;DR: The IRS treats digital assets as property, not currency. Selling, swapping or spending crypto is a taxable disposition, with short- or long-term capital gain rules. Brokers report gross proceeds on Form 1099-DA for 2025 transactions and basis for certain transactions from 2026. As of Oct 2026, the wash sale statute covers stock and securities, so crypto is generally outside it, but that could change. Size speculative positions so a total loss doesn't wreck your FIRE plan.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Every few years, crypto makes someone a millionaire and convinces a much larger group that they're next. Lavish Larry is in the larger group. He has a coin named after a dog, a strong opinion about blockchains and no records of anything. Frugal Fran owns a small position she bought on purpose, sized so she could lose all of it and still retire on schedule.

This guide isn't about whether crypto goes up. It's about taxes, reporting, recordkeeping and how to keep a speculative bet from torpedoing a carefully built plan. For the core of the portfolio, see index fund investing for FIRE.

CPA Warning Label: Crypto is highly volatile and can lose most or all of its value. Exchanges and wallets carry custody, fraud and hacking risks. Tax rules for digital assets are evolving, and this is general information, not advice.

Tax treatment as property

According to the IRS, "for U.S. tax purposes, digital assets are considered property, not currency." That single sentence drives almost everything else:

• Selling crypto for dollars is a taxable disposition. Gain or loss is the difference between proceeds and your basis (generally your cost in U.S. dollars).
• Swapping one coin for another is also a disposition. Chief Counsel Advice 202124008 concluded Section 1031 like-kind treatment doesn't apply to exchanges such as Bitcoin for Ether. (Since 2018, 1031 has applied only to real property anyway. See 1031 basics.)
• Spending crypto on goods or services is a disposition at fair market value.
• Paying a transaction fee in crypto counts as a digital asset transaction, according to the IRS.
• Holding period: one year or less is short-term, taxed at ordinary rates; more than one year is long-term.
• Income: crypto received for services, mining, staking or as certain rewards is ordinary income at fair market value when received. The IRS lists Rev. Rul. 2023-14 on staking income.
• Moving coins between your own wallets isn't a disposition, unless you pay the transfer fee in crypto.

Every Form 1040 asks the digital asset yes/no question. Simply holding crypto, or buying it with dollars without selling, is generally a "No". Selling, swapping, spending or receiving crypto as income is a "Yes". Dispositions of crypto held as a capital asset go on Form 8949. Long-term gains may qualify for the 0% rate if your taxable income is low enough, which can matter in early retirement. The 2026 0% bracket goes up to $98,900 of taxable income for married filing jointly (as of Oct 2026).

Form 1099-DA

The Infrastructure Investment and Jobs Act changed broker reporting rules under Section 6045. According to the IRS, under the final regulations:

• Brokers report gross proceeds on Form 1099-DA for transactions on or after Jan. 1, 2025.
• Brokers report basis on certain transactions on or after Jan. 1, 2026.
• The rules apply to custodial brokers that take possession of your assets, such as centralized exchanges and certain hosted wallet providers. Decentralized or non-custodial brokers aren't covered by the final regulations.

Practical implications as of Oct 2026:

• For 2025 transactions, many forms show proceeds but not basis. If you leave basis blank, it can look like 100% gain. You need your own records to report basis correctly.
• Coins transferred into an exchange from elsewhere may show no basis even in later years, because the broker doesn't know what you paid.
• Revenue Procedure 2024-28 provided transitional guidance for allocating unused basis to wallets and accounts as of Jan. 1, 2025.

The IRS also warns of a scam letter about registering crypto on a "compliance portal". The IRS says it doesn't require registration of digital assets.

Wash sale status

The wash sale rule in Section 1091 disallows a loss on a sale of stock or securities if you buy substantially identical stock or securities within 30 days before or after. Since the IRS treats crypto as property, and Section 1091 is written in terms of stock and securities, crypto held directly is generally outside the wash sale rule as of Oct 2026.

In practice, that means an investor could sell a coin at a loss and buy it back immediately, harvesting the loss while keeping the position. Some caveats:

• Legislation could change this. Proposals to extend wash sale rules to digital assets have appeared in Congress before. Check current law before you rely on it.
• Exchange-traded crypto products such as ETFs are a different structure from coins held directly. Their treatment may differ, so don't assume.
• Economic substance and sham-transaction doctrines still exist. Document a real sale.
• The $3,000 limit on net capital losses against ordinary income still applies, with carryforwards (Pub 550).

Stocks and funds in your taxable brokerage account remain subject to wash sale rules, including purchases in your IRA.

Sizing speculative bets

The FIRE math is unforgiving about outcomes you can't control. A useful rule: size any speculative position so that losing all of it wouldn't change your retirement date by more than you can accept.

Illustration: Fran has $800,000 and needs $1,000,000 to retire. She puts 3% ($24,000) in crypto. If it goes to zero, she's at $776,000 and roughly a year behind, depending on returns and savings. If it goes up 5x, it becomes $120,000, a nice boost but not life-changing. She's fine with both outcomes, which is the point.

Larry has 60% of his net worth in tokens. If they double, he retires tomorrow. If they fall 80%, which crypto has done historically during bear markets, he works an extra decade. His plan is a coin flip that he describes as "conviction".

• Decide the target percentage in advance, and write it down.
• Rebalance: trim when it grows well above the target. Taxes on gains are a nice problem to have. Use the rebalancing calculator.
• Don't use leverage on volatile assets.
• Count crypto as part of your stock-like risk budget, not as a bond substitute.
• Compare costs: spreads and trading fees add up. See why expense ratios matter.

The same concentration logic applies to company stock from RSUs and stock options: large single positions are where FIRE plans go to become dramatic.

Recordkeeping

The IRS requires records that document your purchase, receipt, sale, exchange or other disposition of digital assets, and the fair market value in U.S. dollars of digital assets received as income. For each transaction, keep:

• The type of digital asset
• The date and time of the transaction
• The number of units
• The fair market value in U.S. dollars at that time
• Your basis in the units sold or disposed of

Practical habits:

• Download transaction history from every exchange every year. Exchanges close, merge and get hacked.
• Track transfers between wallets so basis follows the coins.
• Choose and document a lot-identification method. Since 2025, the IRS has required identification on a wallet-by-wallet or account-by-account basis rather than one universal pool, with transitional relief in Notice 2025-07 for units held by a broker.
• Reconcile your records against any Form 1099-DA before you file.
• Secure your wallet backups. Lost keys are lost money, and a loss from simply losing access may not be deductible in the way you'd hope.

Larry's recordkeeping system is called "I'll figure it out". His 1099-DA has now figured it out for him, minus his basis.