Crypto taxes in the US are property taxes in disguise. Under IRS Notice 2014-21, issued in 2014, virtual currency is treated as property, so selling, swapping, or spending it usually creates a taxable gain or loss, reported much like stock sales. Buying and holding, on its own, does not trigger taxes.
L4 News publishes information, not tax advice — for your specific situation, a qualified tax professional is the right stop, and this explainer describes the general federal rules as of the 2025 tax year. It is also not investment advice: crypto assets can lose most or all of their value quickly, and taxes are owed on gains regardless.
What counts as a taxable event (and what does not)?
Any disposal or receipt of value counts. Selling crypto for dollars, trading one coin for another, and paying for goods or services are all disposals under the 2014 notice. Receiving crypto as payment, mining reward, or staking reward is income at the moment you receive it.
Here is the practical sorting:
- Taxable events: selling for fiat, swapping one crypto for another, spending crypto on purchases, receiving crypto as income (salary, mining, staking, airdrops per IRS FAQs).
- Not taxable by themselves: buying crypto with dollars and holding it, transferring between your own wallets, gifting within annual exclusion limits.
The swap rule surprises newcomers most: trading bitcoin for a stablecoin, or one altcoin for another, is two events in the IRS view — you disposed of an asset and acquired a new one, even though no dollars left your account.
How do I calculate gain or loss?
Proceeds minus cost basis. Your basis is the U.S. dollar value of the crypto when you acquired it; your proceeds are the dollar value when you disposed of it. The difference is a capital gain or a capital loss, positive or negative, and it gets reported even on coin-to-coin trades.
Example in plain numbers: you bought $200 of ether, later traded it for goods valued at $300 — that is a $100 capital gain. If instead you received 0.1 ETH as payment for freelance work when it was worth $250, you have $250 of ordinary income and a $250 basis in the coin.
Since January 1, 2025, basis tracking is wallet-by-wallet: IRS Rev. Proc. 2024-28 lets you use specific identification of which units you sold, but only within accounts or wallets that hold the assets. Exchanges and software tools export this; the honest requirement is your own contemporaneous records.
Why does the holding period matter?
It sets the rate. Assets held one year or less are short-term and taxed at ordinary income rates; assets held longer than one year are long-term and taxed at preferential capital gains rates — 0, 15, or 20 percent for most filers, per the IRS capital gains guidance. The clock starts when you acquire the crypto.
Two corollaries follow. Frequent trading usually produces short-term gains taxed like salary. And losses do not vanish: capital losses offset gains, and up to $3,000 of net loss per year can offset ordinary income, with the remainder carrying forward.
How do I report crypto on a tax return?
On Form 8949 and Schedule D, plus a yes-or-no digital assets question on Form 1040 that you must answer accurately. Brokers — including exchanges — report your activity to the IRS too: Form 1099-DA reporting began January 1, 2025, per the IRS digital assets guidance.
- Gather records for every purchase, sale, swap, and receipt, with dates and dollar values.
- Sort events into income (reported as ordinary income) and disposals (reported on Form 8949).
- Compute gain or loss per disposal using basis and proceeds, and mark each as short- or long-term.
- Answer the digital assets question on Form 1040 truthfully — checking "no" while trading is a false statement.
- File Schedule D with totals, and keep your worksheets in case the IRS asks.
What about mining, staking, and hard forks?
Mining rewards are ordinary income at fair market value when received, with that value becoming your basis, per IRS FAQ guidance. Staking follows the same treatment in current IRS FAQs, though elements remained under debate as of 2025. Hard forks and airdrops depend on whether you received new units you could access — the 2019 IRS guidance thread covers the basics.
The theme across all three: the IRS taxes receipt first, disposal second. Each time crypto arrives in your wallet as a reward or payment, a dollar value must be fixed and recorded — which is exactly the record nobody has unless they kept it in real time.
What records should you keep from day one?
Dates, amounts, dollar values, and locations. Every acquisition needs its date and fair market value; every disposal needs the same, plus which wallet or account held the units. Screenshots of exchange statements help; a running spreadsheet or a reputable software tool helps more during filing season.
Tax rules change — the broker reporting rollout continues in stages into 2026 for non-custodial wallets, per the IRS — so treat this explainer as a map, not the terrain. The map still ends at the same place: accurate forms, filed on time, backed by records you actually kept.
For more context, read Crypto in retirement accounts: what to know.
For more context, read basel crypto rules.
For more context, read MiCA, explained: Europe's crypto rules.
