Cryptocurrency may feel like money, but federal tax law does not treat it that way. For American holders, the practical result is that many everyday actions, such as selling, trading or spending digital assets, can create a tax obligation. A new reporting form is now making those transactions far easier for the IRS to see.
The Core Rule
The IRS treats digital assets as property rather than currency. That principle goes back to IRS Notice 2014-21, according to a tax-guide summary, and it means the same capital gains concepts that apply to stocks generally apply to crypto. A holder's gain or loss equals the amount received minus the cost basis, which is generally what was paid, plus certain costs.
Simply buying and holding crypto is generally not a taxable event. Selling it for dollars, exchanging one crypto for another, and using it to buy goods or services generally are. If the asset was held for one year or less, the gain is typically short-term and taxed at ordinary income rates. If held longer, it generally qualifies for long-term capital gains rates.
Unlike physical gold, crypto is not treated as a collectible, which means the 28 percent collectibles rate does not apply, according to an analysis from PolicyRisk.
The New Form 1099-DA
The most important recent change is reporting. Starting with transactions in 2025, brokers, including crypto exchanges and certain other platforms, must report digital asset sales on Form 1099-DA, according to an analysis from CRI Advisors. People who sold or disposed of digital assets through a broker might receive the form for 2025.
There is a phase-in. Brokers were required to report gross proceeds for 2025 sales, while basis reporting begins in 2026, according to Today on Chain. That means early forms may show that a sale occurred without showing the actual gain or loss. The taxpayer remains responsible for determining basis and calculating the result, CRI Advisors noted.
For anyone who moves crypto among several exchanges and wallets, tracking basis can be difficult. Records of purchase dates, amounts and prices are essential, and gaps can lead to overpaying or underreporting.
The Digital Asset Question
The IRS also asks every taxpayer a direct question on the return. The agency says that when people file their taxes, they must answer yes or no to the digital asset question, whether or not they have digital assets. Answering incorrectly can create problems, so taxpayers should read the question carefully and use the IRS's questionnaire if they are unsure.
Income, Not Just Gains
Some crypto activity produces ordinary income rather than capital gains. According to one tax summary, guidance on airdrops and staking rewards, including Revenue Ruling 2023-14 on staking, treats certain rewards as income when received, with later sales creating additional gain or loss. Anyone who is paid in crypto, mines it or earns rewards should consult current IRS guidance or a tax professional, as the rules are detailed and can change.
Losses
When a sale produces a loss, it can generally offset other capital gains, and a limited amount of excess loss can offset ordinary income, under the same capital loss rules that apply to other property. Crypto holders have also followed discussions about whether the wash-sale rule, which limits loss deductions on stocks repurchased within a short window, applies to digital assets. Taxpayers should check current law before relying on any strategy.
What Records to Keep
A careful holder keeps a log of each purchase and sale, including date, quantity, price in dollars and fees, along with transfers between wallets, which are generally not taxable but affect basis tracking. Exchange statements, wallet records and the Form 1099-DA should be reconciled with the taxpayer's own records, and tax software or a professional can help.
The Policy Picture
Congress and regulators continue to debate how digital assets should be defined, reported and taxed, and rules can shift from year to year. The IRS has been steadily adding reporting requirements to bring crypto closer to the treatment of stocks.
The Bottom Line
For crypto holders, the message from the IRS is straightforward: digital assets are property, many transactions are taxable, and brokers now report more of them. The smart response is to keep good records, answer the digital asset question accurately and confirm the rules for the specific tax year with the IRS or a tax professional.
This article is for informational and educational purposes only and should not be considered personalized financial, investment, or tax advice.
