Picture someone who bought Bitcoin a few years ago and never sold any of it. It is now worth far more than they paid. Do they owe tax on money they never touched?
It’s a common crypto tax question, and the short answer follows the IRS’s own digital asset guidance: no, you generally don’t owe tax on crypto you only hold. Tax is triggered when you sell, trade, spend, or earn it.
What has changed is how much the IRS can see. Crypto exchanges and other brokers now send Form 1099-DA to you and to the IRS, and starting with 2026 sales it can also show what you paid for certain coins. This guide explains what is and isn’t taxable, what the new form means for you, and which numbers apply to which tax year.
This is general information, not tax advice. Your situation may differ, and tax rules change. For anything beyond buying and holding, check with a tax professional or the IRS before you file.
What changed for 2026
- Form 1099-DA is in use. Brokers must report gross proceeds for digital asset sales made on or after January 1, 2025. The IRS describes 2025 transactions as being reported in 2026, so the 2025 tax year was the first one covered.
- Cost basis reporting starts in 2026. For certain sales on or after January 1, 2026, brokers must also report what you paid. Under the Form 1099-DA instructions, this applies to coins acquired after 2025 in an account where that broker provided custody. Coins you bought earlier, or moved in from another wallet, generally won’t have basis on the form.
- Basis is tracked wallet by wallet. For sales and transfers from January 1, 2025, the IRS has you track cost basis separately for each wallet or account. Revenue Procedure 2024-28 let you assign leftover basis to the wallet or account that held the coins on that date.
- The 2026 capital gains thresholds are higher. The income levels for the 0%, 15% and 20% long-term rates went up for tax year 2026. The table below has the exact figures.
- A court confirmed staking rewards are income. In Paschall v. Commissioner, T.C. Memo. 2026-46 (filed June 4, 2026), the Tax Court held that staking rewards credited to a taxpayer’s account were income in the year received, even though the coins weren’t sold. The IRS lists the decision in its digital asset guidance.
- Still true: holding is not taxable, and the Form 1040 digital asset question is still on your return.
How we put this guide together
We checked every rule and number against IRS pages, IRS revenue procedures, and official court and congressional records on October 13, 2026. Dollar figures in the worked examples are made-up round numbers to show the math, not price quotes. We did not test any tax software for this update, so we don’t recommend one by name. Each rule below says which tax year it applies to: tax year 2025 is the return you filed in 2026, and tax year 2026 is the return you will file in 2027.
The basic rule: holding crypto isn’t taxable
For U.S. tax purposes the IRS treats digital assets as property, not currency. That is the same bucket as stocks or a rental property. If it goes up in value while you still own it, nothing is taxed. The gain is “unrealized.”
A simple example. You buy 1 Bitcoin for $40,000. Later it is worth $100,000 and you still own it. You owe $0 on that $60,000 of paper gain. If a neighbor’s house goes from $300,000 to $500,000, they don’t get a tax bill for the extra $200,000 either. They pay tax on the profit when they sell.
When you do owe tax on crypto
A taxable event is any time you dispose of crypto or receive it as payment. The IRS lists these ways to answer “Yes” on the digital asset question on your return:
Selling crypto for dollars
You sell for $50,000 something you bought for $30,000. You report a $20,000 capital gain. If you sell for less than you paid, you report a loss.
Trading one crypto for another
Swapping Bitcoin for Ethereum counts as selling the Bitcoin, even though no dollars hit your bank account. Your gain or loss is the difference between what the Bitcoin was worth at the time of the swap and your cost basis in it.
Spending crypto on goods or services
Paying for a $5,000 laptop with Bitcoin you bought for $3,000 means you sold that Bitcoin at a $2,000 gain. This is why paying for small things with crypto creates a record-keeping chore.
Getting paid in crypto
Crypto you receive for work is ordinary income, valued at its fair market value in U.S. dollars on the day you receive it. If you are an employee, it is wages. If you are an independent contractor, the IRS says it is self-employment income and subject to self-employment tax. That value also becomes your cost basis in the coins. Businesses weighing crypto payroll can read our guide on how to pay employees in crypto.
Mining, staking and rewards
Mining and staking rewards are income. Under IRS Revenue Ruling 2023-14, the reward is income in the year you gain “dominion and control,” meaning you are able to sell, exchange, or otherwise dispose of it, valued at that moment. In June 2026 the Tax Court reached the same result in Paschall v. Commissioner (T.C. Memo. 2026-46), ruling that staking rewards credited to an account were income when received.
Airdrops and hard forks
If a hard fork leaves you with new coins, or you receive an airdrop tied to a hard fork, you have ordinary income when you receive them. A hard fork that gives you no new coins creates no income. A soft fork does not either.
What is not taxable
- Buying crypto with dollars and holding it.
- Moving crypto between wallets or accounts you own. The IRS says this is not taxable even if an exchange sends you a form for the transfer. If you pay the network fee in crypto, though, that fee payment is a transaction.
- Receiving crypto as a genuine gift. You owe nothing until you sell, and your basis generally carries over from the giver.
Form 1099-DA: what the IRS now receives
Brokers are the businesses that take custody of your crypto and sell or exchange it for you, such as custodial exchanges and some hosted wallet providers. They now file Form 1099-DA, Digital Asset Proceeds From Broker Transactions, with the IRS and send you a copy.
| What brokers report | Applies to transactions on or after |
|---|---|
| Gross proceeds from digital asset sales | January 1, 2025 (2025 transactions are reported in 2026) |
| Cost basis, for coins acquired after 2025 in a custodial account with that broker | January 1, 2026 |
| Fair market value in real estate closings paid with digital assets | January 1, 2026 |
A few details to note:
- For 2025 transactions reported in 2026, the IRS said it would not penalize brokers who made a good-faith effort to file and send the forms correctly and on time. Check any form you receive against your own records.
- The final rules do not cover decentralized or non-custodial brokers that never take possession of your assets. Activity on those platforms may not produce a 1099-DA, but it is still taxable and you still report it.
- A separate IRS rule that would have required certain decentralized finance (DeFi) platforms to report as brokers was overturned by Congress. The joint resolution, H.J. Res. 25, became Public Law 119-5 on April 10, 2025, and the rule has no force or effect.
- The form shows proceeds. For 2025 sales it often will not show your basis, so you or your software have to supply it. If your own records are better than the form, report the correct figures and keep proof.
- Do not wait for a form. The IRS says you must report income, gain or loss from taxable transactions regardless of the amount, and whether or not you receive a payee statement or information return.
The digital asset question on your tax return
Form 1040 asks: “At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Everyone has to check Yes or No.
The IRS says to check No if you only held digital assets, bought them with real currency, or moved them between your own wallets or accounts. Check Yes if you sold, traded, spent, or were paid in crypto, or received it through mining, staking, or an airdrop. Answer from your records, not from memory.
How to calculate your crypto taxes
Capital gains from selling or trading
The basic formula is the amount you received, minus your cost basis, minus allowable fees. Example with round numbers: you bought 1 coin for $40,000 and paid a $50 fee, so your basis is $40,050. You sell it for $60,000 and pay a $75 fee. Your gain is $60,000 − $40,050 − $75 = $19,875.
How long you held it sets the rate. Under IRS guidance, the holding period starts the day after you acquire the coin.
- Held one year or less (short-term): taxed as ordinary income at your regular bracket. For tax year 2026, the top federal rate is 37% on taxable income over $640,600 for single filers ($768,700 for married couples filing jointly).
- Held more than one year (long-term): taxed at 0%, 15% or 20% depending on your taxable income.
| Filing status | 0% rate up to (taxable income) | 15% rate up to | 20% above |
|---|---|---|---|
| Single | $49,450 | $545,500 | $545,500 |
| Married filing jointly | $98,900 | $613,700 | $613,700 |
| Head of household | $66,200 | $579,600 | $579,600 |
For comparison, the tax year 2025 limits for single filers were $48,350 for the 0% rate and $533,400 for the 15% rate. For married couples filing jointly they were $96,700 and $600,050 (IRS Topic 409). Higher earners may also owe the 3.8% net investment income tax, which starts at $200,000 of modified adjusted gross income for single filers and $250,000 for married couples filing jointly (IRS Topic 559).
Income from work, staking, mining and airdrops
Report the fair market value in dollars at the time you got control of the coins. That amount is taxed as ordinary income, and it is also your cost basis if you sell later. Non-business ordinary income, such as staking, mining or fork income, goes on Form 1040 or Schedule 1, as applicable. Capital gains and losses go on Form 8949 (unless your broker’s Form 1099-DA already shows both gross proceeds and basis) and are summarized on Schedule D.
Which coins did you sell? Cost basis methods
If you bought the same coin at different prices, the IRS lets you choose which units you sold, but you have to do it the right way. For sales and transfers on or after January 1, 2025, basis is tracked separately for each wallet or account, not across everything you own. In a wallet you control yourself, you identify the units on your records no later than the date and time of the sale, using something like the purchase date and time or the purchase price, and you keep records that show those units were the ones removed. If your coins sit with a broker, you tell the broker which units to sell, using the identifiers it accepts.
If you don’t identify units, the default rule applies. The oldest units in that wallet or account are treated as sold first, which is first in, first out (FIFO). Because tracking is per wallet, moving coins around can change which units count as oldest, so check your records before and after a transfer. These rules come from the IRS’s December 2025 FAQs on digital asset transactions; the older IRS crypto FAQs cover transactions before 2025.
Losses
Capital losses first offset capital gains. If your losses are larger than your gains, you can deduct up to $3,000 of the rest against other income ($1,500 if married filing separately), and carry anything left over into later years (IRS Topic 409). That rule applies to all capital assets, not just crypto, so a crypto loss can also offset gains from stocks.
On wash sales: the wash sale rule in the tax code, section 1091, is written for “stock or securities.” The IRS treats crypto as property. As of Oct. 13, 2026, no enacted law had extended the rule to crypto. Two bills would change that. H.R. 9172 would apply the wash sale rules to digital assets, and a related bill, H.R. 10357 (the Digital Asset Tax Certainty Act), was approved by the House Ways and Means Committee on September 16, 2026. As of Oct. 13, 2026, H.R. 10357 is not law, and neither is H.R. 9172. Check the current rules before you sell at a loss and buy back right away.
Records to keep
The IRS expects records that document each purchase, receipt, sale, exchange and other disposal, plus the dollar value at the time and your basis. For every transaction, keep:
- The date and time, and the type (buy, sell, trade, payment, reward).
- How many units, and the fair market value in U.S. dollars when it happened.
- Your cost basis and any fees.
- Which wallet or account it was in.
Good records are one of the personal finance habits that pay off at tax time. Crypto tax software and your exchange’s own tax reports can pull this together. They only know what you connect to them, so link every exchange and wallet, including old ones. We are not recommending a specific product.
Common mistakes that cause trouble
- Treating crypto-to-crypto trades as tax-free. They are taxable.
- Skipping small transactions. There is no minimum. A $50 gift card bought with crypto is still a sale of that crypto.
- Ignoring staking, DeFi and airdrop income. Rewards are income when you get control of them.
- Using the 1099-DA as your only record. It may be missing basis, and it won’t cover non-custodial activity.
- Answering the Form 1040 question “No” when you traded. Check it against your records.
- Forgetting gifts of large amounts. The annual gift tax exclusion is $19,000 per recipient for 2026. Giving more than that to one person may mean filing a gift tax return.
What to do if you got it wrong in earlier years
You can fix a past return by filing Form 1040-X, Amended U.S. Individual Income Tax Return. Interest and possibly penalties apply to tax you underpaid, but correcting it yourself on your own schedule is usually better than waiting for the IRS to write to you. If the amounts are large or the records are a mess, hire a tax professional with crypto experience before you file anything.
A simple plan for the rest of 2026
- Download your full transaction history from every exchange you have used, including accounts you no longer use.
- Check your wallets against your exchange records so the cost basis follows the coins.
- Before you sell, look at how long you have held the coins. Selling after the one-year mark can move you from your regular rate to a long-term rate.
- If you will owe a meaningful amount, remember that estimated tax payments may apply for the 2026 tax year. Do not spend the gain before you know the tax. One option is to keep the expected bill in a separate high-yield savings account until you file.
- Get professional help if you have staking income, DeFi activity, lots of trades, or coins on foreign platforms.
Frequently asked questions
Do I pay taxes on crypto if I never sold anything?
No. Buying and holding crypto is not a taxable event, even if it has gained a lot of value. You owe tax when you sell, trade, spend, or earn crypto. You still answer the digital asset question on your return, and if you only held, the IRS says to check No.
Is moving crypto between my own wallets taxable?
No. The IRS says a transfer between wallets or accounts you own or control is not a taxable event. Paying the network fee in crypto is a separate transaction, and keep records showing that both wallets are yours.
What is Form 1099-DA?
It is the form brokers use to report digital asset sales to you and the IRS. Gross proceeds are reported for sales on or after January 1, 2025. Cost basis is reported for certain sales on or after January 1, 2026, mainly coins acquired after 2025 in a custodial account with that broker. Decentralized platforms that never hold your assets are not covered by these rules.
Which tax year do these rules apply to?
The 1099-DA and Form 1040 rules above apply to the 2025 return you filed in 2026 and to the 2026 return you will file in 2027. The capital gains thresholds in the table are for tax year 2026. The 2025 figures are in the paragraph under the table.
Do I pay tax on a crypto gift I receive?
Not when you receive a genuine gift. You owe tax only when you later sell it. Your basis for a gain is generally the giver’s basis, so keep a record of what they paid. If the coin is worth less than their basis when you receive it, a different basis rule applies to losses.
Can I deduct crypto losses?
Yes, as capital losses. They offset capital gains first, then up to $3,000 of other income per year ($1,500 if married filing separately), with the rest carried forward. Losses from crypto that was stolen or lost to a scam follow different rules, so ask a tax professional.
Are stablecoins and NFTs taxed like other crypto?
Yes. The IRS lists stablecoins and NFTs as digital assets. Swapping Bitcoin for a stablecoin is a taxable trade, and selling an NFT for more than your basis creates a capital gain.
Does the wash sale rule apply to crypto?
Not as of Oct. 13, 2026. Section 1091 covers stock or securities, and no enacted law had extended it to crypto. Bills that would change this, including H.R. 9172 and H.R. 10357, were pending in Congress and not law as of that date, so confirm the current rule before relying on it.
In short
Holding crypto is not taxable. Selling, trading, spending, and earning it are. The bigger change for 2025 and 2026 is reporting: your exchange sends the IRS the proceeds from your sales, and for coins bought from 2026 on in a custodial account, it also reports cost basis. To stay out of trouble, keep clean records for each wallet and report what happened, not what a form happens to show.
Not tax advice. This guide explains IRS rules as published on the date we checked them. It does not account for your personal facts, state taxes, or later changes in the law.
