Crypto Taxes: The Property Rules, Explained

By Tom, CPA · Updated October 27, 2026

Part of: Tax Planning

TL;DR: The IRS treats crypto as property. Selling, swapping or spending it can create a capital gain or loss; staking and mining rewards are ordinary income. Brokers now issue Form 1099-DA with proceeds from 2025 and basis for some 2026 trades. Keep your own records to fill gaps.

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.

The tax code is 4 million words long, and for years almost none of them mentioned crypto. The IRS filled the gap with one idea: digital assets are property, not currency. Every swap, sale and coffee bought with bitcoin is a disposal of property that can produce a gain or loss. That one sentence explains most of crypto tax.

What changed recently is the paperwork. Brokers began issuing Form 1099-DA for 2025 transactions, with cost basis added for many 2026 transactions. This guide covers taxable events, how gains are figured, the new reporting, staking and mining income, losses and wash sales, and the record-keeping that keeps you out of trouble. Rules are as of Oct 2026 and still evolving.

CPA Warning Label: Crypto rules are still changing. Do not rely on 1099-DA basis alone, and treat aggressive loss harvesting and offshore accounts as audit-sensitive.

Digital assets are property

The IRS treats convertible virtual currency and other digital assets, including stablecoins and NFTs, as property for federal tax purposes. The same capital gain rules that apply to stock apply to crypto, with a few twists. Your return also includes a yes-or-no digital asset question on the front page of Form 1040, and you must answer it truthfully even if you only bought and held.

Taxable events include:

• Selling crypto for dollars.
• Trading one token for another, including stablecoins. A BTC-to-ETH swap is a sale of BTC.
• Spending crypto on goods or services.
• Receiving crypto as payment for work (ordinary income at fair market value).
• Receiving staking or mining rewards (ordinary income when you gain control).
• Airdrops you gain control of after a hard fork.

Not taxable: buying crypto with dollars, moving it between your own wallets, and holding. Gifting is generally not a taxable sale for you, though large gifts may require a gift tax return above the $19,000 annual exclusion (2026).

Figuring gain or loss

Gain or loss equals what you received minus your basis. Basis is generally what you paid, including fees. Holding more than one year gives long-term rates of 0%, 15% or 20%; one year or less is short-term at ordinary rates. The 2026 0% long-term bracket runs up to $98,900 of taxable income married filing jointly and $49,450 single.

When you own the same token bought at different prices, you need a method to pick which units you sold. Starting in 2025, the IRS requires you to identify units on a wallet-by-wallet or account-by-account basis rather than one universal pool. If you do not specifically identify units, first in, first out applies within each account. Revenue Procedure 2024-28 gave a safe harbor to allocate unused basis across wallets as of January 1, 2025.

Higher earners may also owe the 3.8% net investment income tax on crypto gains above $250,000 MAGI married filing jointly or $200,000 single.

Form 1099-DA and broker reporting

Per the IRS digital assets page:

• Brokers report gross proceeds on Form 1099-DA for sales on or after January 1, 2025.
• Brokers must report cost basis for certain transactions on or after January 1, 2026, generally assets acquired in the same account on or after that date.
• Penalty relief applies to brokers making good-faith efforts on 2025 reporting.
• Decentralized or non-custodial platforms are not covered by these broker rules, as of Oct 2026. You still owe tax on those trades.

Expect 1099-DAs showing proceeds with missing basis, especially for coins you transferred in from another wallet. If you report the form as is, you may pay tax on the full proceeds. Use your own records to supply basis on Form 8949.

Scam alert: the IRS warns about fake letters directing people to a "compliance portal" to report crypto. The IRS does not use such portals; verify any notice through your IRS online account.

Staking, mining and getting paid in crypto

• Staking rewards are ordinary income at fair market value when you gain dominion and control, per Revenue Ruling 2023-14. That value becomes your basis.
• Mining is income at fair market value when received. As a business, it is self-employment income subject to 15.3% SE tax, and expenses go on Schedule C.
• Wages paid in crypto are wages, reported on a W-2 at fair market value.
• Freelance payments in crypto are self-employment income. Clients may issue 1099s; you report the income regardless.

Track the dollar value on the day each reward hits your wallet. Software can help, but you are responsible for accuracy.

Illustration: a busy year

Illustration: a single filer in the 22% bracket has this 2026 activity:

The short-term loss nets against the long-term gain: net long-term gain $20,500, taxed at 15% = $3,075. Staking income at 22% = $198. Total federal tax from crypto: about $3,273.

The SOL received in the swap has a basis of $4,500, its fair value at the swap. The staked tokens have a basis of $900. Without records, a 1099-DA might show only the $30,000 of BTC proceeds, and a careless filer could pay tax on all of it.

Assumptions: taxable income stays within the 15% long-term bracket, no state tax.

Losses and wash sales

Crypto losses are capital losses. They offset capital gains, then up to $3,000 of ordinary income a year, with the rest carried forward. See the $3,000 capital loss limit.

The wash sale rule in section 1091 applies to "stock or securities." As of Oct 2026, most crypto tokens are not securities for this purpose, so selling at a loss and buying back right away is widely viewed as allowed. Congress has proposed extending wash sale rules to digital assets several times. Aggressive harvesting can still be challenged under economic substance doctrine, and crypto ETFs held in a brokerage account are securities, so the wash sale rule does apply to them.

Lost keys and worthless tokens are harder. Theft and casualty losses for personal property are largely not deductible. A token that becomes worthless may produce a capital loss if you can prove abandonment or a closed transaction; selling for a nominal amount is cleaner.

DeFi, NFTs and the gray zones

Decentralized finance is where crypto tax law gets thin. As of Oct 2026, the IRS has not issued detailed guidance for many DeFi activities, so filers rely on general property principles and reasonable positions.

• Wrapping tokens (ETH to wETH) may or may not be a taxable exchange. Many treat it as non-taxable; the IRS has not said.
• Liquidity pools: depositing two tokens and receiving an LP token can be viewed as a disposal. Rewards are generally ordinary income.
• Lending: interest earned is ordinary income; whether lending a token is a disposal is unsettled.
• NFTs are property. Some NFTs that are collectibles may face the 28% maximum long-term rate rather than 20%.
• Bridging between chains is generally not taxable if you keep the same asset, but fees and wrapped versions complicate it.

Pick a consistent, documented approach and apply it every year. Inconsistency is what draws attention.

Records, FIRE plans and compliance

• Export transaction histories from every exchange each year. Exchanges close, and their data goes with them.
• Record wallet addresses, dates, amounts, dollar values and fees for each transaction.
• Reconcile 1099-DAs against your records before filing.
• Foreign exchange accounts may trigger FBAR or Form 8938 questions; rules for crypto-only accounts are unsettled as of Oct 2026.
• Donating long-term crypto to charity avoids the gain; claims over $5,000 generally need a qualified appraisal.

If crypto is part of an early retirement plan, see crypto and FIRE and the tax planning hub.