To report cryptocurrency on your tax return, answer the digital asset question at the top of Form 1040, list each sale, trade, or spending event on Form 8949, carry the totals to Schedule D, and report any mining, staking, airdrop, or wage income on Schedule 1 or Schedule C. The IRS treats digital assets as property, so nearly every disposal produces a capital gain or loss, and nearly every receipt of crypto produces ordinary income. Your 2025 activity is due on the return you file by April 15, 2026, and starting with the 2025 tax year, brokers must send you a new Form 1099-DA showing much of the same data the IRS already has on file.
Answer the Digital Asset Question on Form 1040
Every filer has to answer a yes-or-no question near the top of Form 1040: “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)?”
Check “Yes” if during the year you sold crypto for dollars or any other currency, traded one token for another (stablecoin swaps included), paid for goods or services with crypto in any amount, received crypto as wages, mining rewards, staking rewards, or an airdrop, gifted or donated crypto, or disposed of a digital asset ETF.
Check “No” if your only activity was buying crypto with U.S. dollars, holding it in a wallet, or moving it between wallets you own. Buying and holding alone does not trigger a “Yes.”
The question sits under a perjury declaration. Willfully filing a false answer can be charged as a felony under federal law, with a fine of up to $100,000 and up to three years in prison.
Report Sales and Trades on Form 8949 and Schedule D
Each disposal of a digital asset gets its own line on Form 8949. For every transaction you enter:
- Column (a): a description of the asset
- Column (b): the date acquired
- Column (c): the date sold or disposed of
- Column (d): your proceeds in U.S. dollars
- Column (e): your cost basis (what you paid, including exchange fees)
- Column (h): the gain or loss
Short-term transactions (held one year or less) and long-term transactions (held more than a year) go in separate sections of the form. The totals flow to Schedule D, which nets your gains and losses for the year.
If your broker reported a transaction on Form 1099-DA and reported the basis to the IRS, you may be able to skip Form 8949 for those entries and put aggregate totals straight on Schedule D. Everything else needs its own line.
To fill any of this out, you need four data points for every transaction: acquisition date, disposal date, fair market value in dollars at each event, and cost basis. If you received the asset as income (mining, for example), your basis is the value you already reported as income when you received it. Most exchanges let you download a CSV of your transaction history, and crypto tax software can consolidate activity across multiple exchanges and wallets.
Choose a Cost Basis Method: FIFO or Specific Identification
When you sell part of a position you’ve built up through multiple purchases at different prices, you need a method for deciding which units you sold. The default is FIFO, first in, first out: the IRS assumes you sold your oldest units first. Starting in 2026, brokers must apply FIFO unless you actively elect a different method.
The alternative is specific identification, which lets you pick exactly which units to sell. Choosing units with a higher basis reduces the gain. For assets held with a broker, you must designate the specific units before the trade executes, and the broker must record that selection. For assets in a self-custody wallet, you must note the specific units in your own records no later than the time of the transaction, using identifiers like purchase date and price.
FIFO is simpler but often produces larger taxable gains in a rising market because your cheapest units get sold first. Specific identification gives you more control over your tax bill and demands more careful bookkeeping.
Report Mining, Staking, Airdrops, and Crypto Wages as Income
Receiving crypto is an ordinary income event, not a capital gain. The taxable amount is the fair market value of the tokens at the moment you gain control over them. That value also becomes your cost basis for the eventual sale.
Where the income goes depends on the activity:
- Casual mining or staking without a profit motive: Schedule 1, Line 8z (other income).
- Mining or staking run as a business: Schedule C, where you can also deduct business expenses like electricity and equipment. Schedule C net earnings are subject to self-employment tax (15.3% on the first $147,000-plus of net earnings, 2.9% above that). Hobby income is not.
- Wages paid in crypto by an employer: reported on your W-2 like any other compensation.
- Independent contractor payments in crypto: Schedule C.
The IRS looks at factors like your intent to profit, time invested, and whether you depend on the income to decide whether an activity is a hobby or a business.
What Form 1099-DA Means for Your Return
Starting with the 2025 tax year, crypto brokers must file Form 1099-DA (Digital Asset Proceeds From Broker Transactions) with the IRS and send you a copy. It includes the name and code of the digital asset, the number of units sold, the dates acquired and sold, your proceeds, and in many cases your cost basis and gain or loss.
Previously, some exchanges issued Form 1099-B or 1099-MISC and many issued nothing. Now the IRS gets a standardized report and can cross-check your return against broker data the same way it does with stock trades. If your Form 8949 doesn’t match your 1099-DA, expect a notice. Compare the 1099-DA against your own records before you file. Cost basis errors are common, especially when you transferred tokens in from another exchange or a self-custody wallet where the broker had no record of your original purchase.
Rates on Your Crypto Gains
Holding period drives the rate. Assets held more than a year qualify for long-term capital gains rates of 0%, 15%, or 20%, with the breakpoints depending on your taxable income and filing status. For the 2026 tax year, the 0% rate runs up to $49,450 for single filers, $98,900 for married filing jointly, and $66,200 for head of household; the 15% rate covers income up to $545,500 single, $613,700 joint, or $579,600 head of household; the 20% rate applies above those thresholds.
Assets held one year or less produce short-term gains, taxed at your ordinary income rate, which can reach 37%.
A 3.8% Net Investment Income Tax stacks on top when your modified adjusted gross income exceeds $200,000 single or $250,000 joint. Those thresholds are not indexed for inflation. Combined with the 20% long-term rate, the effective top federal rate on crypto gains reaches 23.8%.
Using Crypto Losses
A net capital loss for the year offsets capital gains from other investments like stocks or real estate. If losses still exceed gains after that netting, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately). Any remaining loss carries forward to future years indefinitely.
The wash sale rule under Section 1091 does not currently apply to digital assets. Stock investors who sell at a loss and repurchase the same security within 30 days before or after the sale lose the deduction; because the IRS classifies crypto as property rather than a security, that restriction has not been extended to digital assets as of 2026. You can sell a token to lock in a loss and buy it back immediately. Congress has proposed closing this gap several times, and Form 1099-DA already includes a field for reporting disallowed wash sale losses, so the treatment may not last.
Donating or Gifting Crypto
Donating appreciated crypto held more than a year directly to a qualified charity lets you deduct the full fair market value without recognizing any capital gain on the appreciation. Sell first and donate the cash and you owe tax on the sale. Donations valued above $5,000 require a qualified appraisal and Form 8283 with your return.
Gifting crypto to another person is not a taxable event for you or the recipient. In 2026 you can give up to $19,000 per recipient without filing a gift tax return. The recipient inherits your cost basis and owes capital gains tax when they eventually sell.
Foreign Exchanges: Check FBAR and Form 8938
If you hold crypto only on U.S.-based exchanges, these rules likely don’t apply. If you use a platform based overseas, they might. U.S. persons with a financial interest in foreign financial accounts whose aggregate value exceeds $10,000 at any point during the year must file FinCEN Form 114 (the FBAR). Whether the account generated taxable income is irrelevant; the balance alone triggers the requirement.
Form 8938 (Statement of Specified Foreign Financial Assets) applies at higher thresholds: $50,000 on the last day of the year or $75,000 at any point during the year for single filers living in the U.S., and $100,000 or $150,000 for joint filers. Taxpayers living abroad face higher thresholds still.
Penalties are steep. Non-willful FBAR violations carry a penalty of up to $16,536 per account per year at current inflation-adjusted levels. Willful violations are far worse.
Deadlines and Extensions
Your 2025 crypto activity is reported on the return due April 15, 2026. You can request an automatic six-month extension with Form 4868, but the extension only pushes the filing deadline. Any tax you owe is still due April 15, and unpaid balances accumulate penalties and interest from that date. If you can’t pay in full, you can apply for an installment agreement, though interest keeps running on the balance.