Taxable events
Selling crypto for USD, trading one crypto for another, spending crypto on goods or services, receiving crypto as payment for work, earning staking rewards, receiving airdrops, and mining are all taxable events. Holding alone is not. The one that surprises people every year is the coin-to-coin trade: swapping ETH for SOL is a sale of the ETH at fair market value, with gain or loss, even though no dollars touched the transaction.
How gains are calculated
Gain or loss is proceeds minus cost basis. Basis is what you paid, including fees; proceeds are the fair market value of whatever you received, including in coin-to-coin trades. Every disposal lands on Form 8949, totals flow to Schedule D, and each lot needs an acquisition date, a disposal date, and both dollar amounts. That per-lot detail is why records, not the tax rules, are the hard part of crypto filing.
Short-term vs long-term
Held one year or less: short-term, taxed at ordinary income rates. Held more than one year: long-term, taxed at 0%, 15%, or 20% capital gains rates. The holding period runs per lot, so an active wallet holds a mix of both at all times, and choosing which lot to sell is where specific identification earns its keep.
Cost basis methods
FIFO is the default. Specific identification is allowed if you can document which units you sold (most crypto accounting software tracks this). Average cost is NOT allowed for crypto. Basis now also has to be tracked wallet by wallet and account by account rather than pooled across everything you own, which makes clean per-wallet records more important than they used to be.
Staking, airdrops, and mining
Staking rewards are ordinary income at FMV on receipt. The Jarrett case is ongoing but the IRS's current position is taxable-on-receipt. Mining is self-employment income if operated as a trade or business. Airdrops are ordinary income when you have control of the tokens. In each case, the amount reported as income becomes your basis, so you are not taxed twice when you later sell; you are taxed on the change in value since receipt.
Losses and loss harvesting
Crypto losses are capital losses: they offset capital gains fully, then up to $3,000 of ordinary income per year, and the rest carries forward indefinitely. Coins that became worthless or were lost to a hacked or collapsed platform are a harder case; the deduction depends on facts and timing, and the position needs documentation. Realized losses in a down year are worth harvesting deliberately rather than discovering at filing time.
No wash-sale rule (yet)
Stock wash-sale rules don't currently apply to crypto. You can sell at a loss and repurchase immediately, unlike stocks. Congress has proposed closing this loophole multiple times. Until it does, selling a losing position, capturing the loss, and re-entering is a legitimate strategy; just document the trades and expect the rule to change eventually.
2025: 1099-DA arrives
Brokers must now report crypto transactions on Form 1099-DA. Coinbase, Kraken, Gemini, and similar will issue these starting with 2025 tax year. DeFi and self-custody still require your own records. The practical effect is matching: the IRS computer compares 1099-DA totals against your 8949, and unexplained gaps generate automated notices the same way unreported stock sales always have.
DeFi, NFTs, and the gray areas
Liquidity pools, lending protocols, wrapping, and NFT trades sit in territory the IRS has not fully mapped. The conservative reads treat most token-for-token protocol interactions as disposals, and NFT gains may be taxed at the higher collectibles rate depending on the underlying asset. When guidance is thin, the defensible approach is a consistent method, applied every year, with the reasoning written down.
Catching up on unreported years
If prior years are missing or wrong, the fix is amending on Form 1040-X with corrected 8949s, and doing it before the IRS writes first. Voluntary correction dramatically reduces penalty exposure compared to waiting for a notice generated by exchange data. Reconstructing old activity from exchange exports and blockchain records is tedious but almost always possible.
Common questions
- Do I need to report crypto I haven't sold?
- Not the holding itself. But you still answer 'yes' to the crypto question on 1040 if you bought, sold, traded, or received any crypto during the year.
- How do I track cost basis across multiple wallets and exchanges?
- Crypto tax software (Koinly, CoinTracker, TaxBit). For active traders, reconciling across platforms is most of the work.
- Is moving crypto between my own wallets taxable?
- No. A transfer to yourself is not a disposal. Keep the transfer records anyway, because basis has to follow the coins to the new wallet, and network fees paid in crypto are themselves small disposals.
- What happens when I receive crypto as a gift?
- Receiving a gift is not income. You generally take the giver's basis and holding period, so get those numbers at the time of the gift. Large gifts can create a gift tax filing requirement for the giver, not for you.
- I never received a 1099 from my exchange. Do I still report?
- Yes. The form was never what made the income taxable. For years before 1099-DA, the IRS has obtained customer records from exchanges by other means, so missing paperwork is not protection.
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