Yes, cryptocurrency is generally considered capital gains property by the IRS. Because digital assets are treated as property rather than currency, selling, trading, or spending crypto triggers a capital gain or loss the same way disposing of stock or real estate does. Short-term gains (assets held one year or less) are taxed at ordinary income rates of 10% to 37%; long-term gains get preferential rates of 0%, 15%, or 20%. Some crypto activity falls outside capital gains treatment entirely: mining, staking, and airdrop rewards are ordinary income when received, and simply buying and holding crypto isn’t taxed at all.
Why Crypto Falls Under Capital Gains Rules
The IRS set its position in Notice 2014-21: virtual currency is property for federal tax purposes, not currency.1Internal Revenue Service. Notice 2014-21 That single classification drives the rest of the tax treatment. The same rules that govern stocks, bonds, and real estate apply to Bitcoin, Ethereum, and every other token.2Internal Revenue Service. Digital Assets Each disposal gets measured for gain or loss based on how long you held the asset and what it was worth at purchase and at sale.
The property label also carries teeth. Underreporting crypto gains can trigger an accuracy-related penalty of 20% of the underpaid tax.3Internal Revenue Service. Accuracy-Related Penalty Willful tax evasion is a felony carrying up to five years in prison and fines up to $250,000.4Internal Revenue Service. Tax Crimes Handbook
Which Crypto Transactions Are Capital Gains
Three types of activity produce a capital gain or loss:
- Selling crypto for U.S. dollars or another fiat currency. Your gain or loss is the difference between what you received and your cost basis, meaning what you originally paid.5Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions
- Trading one crypto for another. Swapping Bitcoin for Ethereum is treated as selling the first asset at its fair market value and buying the second. Section 1031 like-kind exchange rules do not apply to crypto.2Internal Revenue Service. Digital Assets
- Spending crypto on goods or services. Buying a laptop with Bitcoin is the same as selling that Bitcoin at its current market price. You recognize a gain or loss based on the difference between fair market value at the time of purchase and your cost basis.5Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions
Each of these events requires you to know your cost basis and the fair market value at the exact moment of the transaction. Dozens or hundreds of trades over a year makes tracking difficult, and that’s the most common place people run into trouble.
Which Crypto Income Is Not Capital Gains
Not all crypto income gets capital gains treatment. When you earn tokens through mining, staking, or an airdrop, the IRS treats the fair market value of those tokens at the moment you receive them as ordinary income, taxed at your regular income tax rate rather than the preferential capital gains rates.2Internal Revenue Service. Digital Assets Mining and staking rewards are reported on Schedule 1 (Form 1040).
Airdrops following a hard fork work the same way. Under Revenue Ruling 2019-24, if you receive new tokens from a hard fork and can transfer or sell them, you have ordinary income equal to their fair market value at that moment.6Internal Revenue Service. Rev. Rul. 2019-24 If your exchange doesn’t support the new token and you can’t access it, you don’t owe tax until you actually gain control.
Capital gains rules still come back in later. The fair market value you reported as ordinary income becomes your cost basis in those tokens. If you sell them down the road, the difference between the sale price and that basis is a capital gain or loss under the same holding-period rules as any other crypto sale.
What Isn’t Taxed at All
Buying crypto with U.S. dollars and holding it in your wallet is not a taxable event, no matter how much the price rises while you hold it.2Internal Revenue Service. Digital Assets Tax is owed only when you dispose of the asset. Moving crypto between wallets or accounts you own is also not taxable, because no change of ownership occurs.7Internal Revenue Service. Frequently Asked Questions on Digital Asset Transactions One exception: if you pay a network transaction fee in crypto to complete the transfer, that fee itself counts as a disposal.
Gifting crypto is generally not a taxable event for the giver as long as the total stays within the annual gift tax exclusion. For 2026, the limit is $19,000 per recipient.8Internal Revenue Service. What’s New — Estate and Gift Tax Gifts above that threshold don’t automatically trigger tax, but they require a gift tax return and may reduce your lifetime exemption.
Short-Term vs. Long-Term Rates
How long you held the asset before disposing of it determines which rate applies. The holding period starts the day after you acquire the asset.
One Year or Less
Short-term gains are taxed at the same rates as your regular income. For 2026, those rates run from 10% to 37% depending on your total taxable income.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Frequent traders in high brackets can lose more than a third of every gain to federal tax alone.
More Than One Year
Long-term gains qualify for the preferential rates. For 2026, the brackets are:
- 0% on taxable income up to $49,450 (single), $98,900 (married filing jointly), or $66,200 (head of household)
- 15% on taxable income above those thresholds up to $545,500 (single), $613,700 (married filing jointly), or $579,600 (head of household)
- 20% on taxable income above the 15% ceiling
The difference matters. A single filer earning $100,000 who sells crypto held for 11 months might pay 24% on the gain. Waiting one more month would drop that to 15%.
The 3.8% Net Investment Income Tax
High earners face an additional 3.8% surtax on net investment income, which includes crypto capital gains. It applies when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).10Internal Revenue Service. Net Investment Income Tax The effective top rate on long-term crypto gains can reach 23.8%, and the top short-term rate can hit 40.8%.
Losses and the $3,000 Deduction
When you sell crypto for less than your cost basis, you have a capital loss. Losses first offset capital gains dollar for dollar. If losses exceed gains for the year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately).11Office of the Law Revision Counsel. 26 U.S. Code 1211 – Limitation on Capital Losses Remaining losses carry forward to future tax years indefinitely.
One quirk catches people off guard. Crypto is currently not subject to the wash sale rule that governs stocks. Because the IRS classifies crypto as property rather than stock or securities, you can sell a token at a loss, immediately repurchase it, and still claim the loss as of 2026. Legislative proposals to extend wash sale rules to crypto have circulated since 2021, but none have become law.
Cost Basis and the 2026 Wallet Rule
Your cost basis is what you paid for the asset, including transaction fees at purchase. When you’ve bought the same token at different prices over time, the method you use to identify which units you’re selling changes your tax bill.
The IRS recognizes two approaches:
- FIFO (first in, first out) is the default. The earliest units you purchased are treated as the first ones sold. In a rising market, FIFO tends to produce larger gains because the oldest units usually had the lowest basis.
- Specific identification lets you pick exactly which lot you’re selling by date and price of acquisition, giving you flexibility to sell higher-basis units first. You need documentation to back up the selection.
Starting with sales on or after January 1, 2026, final IRS regulations require you to trace each unit to the specific wallet or account where it was acquired. The older approach of treating holdings across every platform as one pool (sometimes called a universal wallet) is no longer permitted.12Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets If you hold crypto across multiple exchanges, each platform’s holdings are tracked separately.
How You Report Crypto Gains
Every taxpayer must answer a yes-or-no question on the front of Form 1040 about whether they received, sold, exchanged, or otherwise disposed of any digital asset during the year.13Internal Revenue Service. Determine How to Answer the Digital Asset Question Check “Yes” if you had any taxable crypto activity, including mining or staking rewards. Check “No” if your only activity was buying crypto with U.S. dollars and holding it, or transferring between your own wallets.2Internal Revenue Service. Digital Assets Skipping the question or answering it incorrectly is a red flag for auditors.
Each capital gain or loss goes on Form 8949, one row per sale, trade, or disposal, with the description, dates acquired and sold, proceeds, cost basis, and gain or loss.14Internal Revenue Service. Form 8949 (2025) Sales and Other Dispositions of Capital Assets The totals flow to Schedule D, which calculates your net capital gain or loss for the year.15Internal Revenue Service. 2025 Instructions for Form 8949 Exchanges have also started sending Form 1099-DA to both you and the IRS: gross proceeds for transactions on or after January 1, 2025, and cost basis on certain sales for transactions on or after January 1, 2026.16Internal Revenue Service. Frequently Asked Questions About Broker Reporting You’re still responsible for verifying the numbers, particularly for assets you transferred in from another platform or private wallet, where the broker may not have complete basis information.17Internal Revenue Service. Understanding Your Form 1099-DA