Cryptocurrency is legal to buy, hold, sell, and use throughout the United States, and no federal law prohibits individuals from owning digital assets. What the law does require is that you pay tax on your transactions, follow reporting rules, and, if you run a crypto business, comply with a layered set of federal and state requirements. Crypto is not legal tender in the U.S., a status reserved for the dollar, so no business or creditor has to accept it as payment.1United States Mint. Coinage Act of April 2, 1792 When two people agree to use it, that transaction is lawful under ordinary contract principles.
Your Right to Own and Self-Custody
Personal ownership is protected at the federal policy level. A January 23, 2025 executive order declared it federal policy to protect “the ability of individual citizens and private-sector entities alike to access and use for lawful purposes open public blockchain networks,” and to “maintain self-custody of digital assets.”2The White House. Strengthening American Leadership in Digital Financial Technology Storing crypto in your own wallet rather than on an exchange is a recognized right, not a legal gray area.
The same order revoked the prior administration’s digital-asset framework and set five policy goals: protecting public blockchain use, promoting dollar-backed stablecoins, ensuring fair banking access for crypto businesses, providing regulatory clarity through technology-neutral rules, and prohibiting any U.S. central bank digital currency. The SEC followed up by forming a Crypto Task Force and dismissing its enforcement action against Coinbase, signaling a move from litigation toward rulemaking.3Securities and Exchange Commission. SEC Announces Dismissal of Civil Enforcement Action Broader market-structure legislation was still being marked up in the Senate Banking Committee as of early 2026, so the rules described below reflect current law rather than any pending overhaul.
How Crypto Is Taxed
The IRS treats digital assets as property, not currency. IRS Notice 2014-21 set this classification: “For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.”4Internal Revenue Service. IRS Notice 2014-21 Selling crypto for cash, swapping one token for another, or paying for goods with crypto all trigger a taxable event. You calculate the difference between what you paid for the asset (your cost basis) and its fair market value at the time of the transaction. That applies to buying coffee just as much as to selling a large position.
Short-Term Versus Long-Term Rates
Crypto held for one year or less is taxed at short-term capital gains rates, which match ordinary income brackets and range from 10% to 37%. Crypto held longer than a year qualifies for long-term rates. For the 2026 tax year, the long-term thresholds are:
- 0% rate: taxable income up to $49,450 for single filers or $98,900 for married couples filing jointly.
- 15% rate: taxable income from $49,451 to $545,500 (single) or $98,901 to $613,700 (married filing jointly).
- 20% rate: taxable income above $545,500 (single) or $613,700 (married filing jointly).
Mining, Staking, and Airdrops
Tokens you receive from mining or staking count as ordinary income the moment you gain control over them. Revenue Ruling 2023-14 spelled this out for staking: the fair market value of validation rewards is included in gross income “in the taxable year in which the taxpayer gains dominion and control over the validation rewards.”5Internal Revenue Service. Revenue Ruling 2023-14 The same rule covers mining rewards and airdrops.6Internal Revenue Service. Digital Assets You report the dollar value on Schedule 1 of Form 1040, and that value becomes your cost basis if you later sell.
The Wash Sale Gap
The wash sale rule that blocks stock investors from selling at a loss and immediately buying back does not currently apply to digital assets. You can sell crypto at a loss, claim the deduction, and repurchase right away. The White House Working Group on Digital Asset Markets has recommended extending wash sale rules to crypto, so this could change, but it remains available for the 2026 tax year.
Penalties for Getting It Wrong
Missing or misreporting crypto activity carries a 20% accuracy-related penalty on the underpaid amount when negligence or a substantial error is involved.7Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments If the IRS finds fraud, the penalty rises to 75% under Section 6663, and criminal prosecution is possible in serious cases.
Reporting Rules You Have to Meet
The Form 1040 Question
Every Form 1040 filer must answer a yes-or-no question about digital asset activity. Check “Yes” if you received crypto as payment, a reward, or through mining or staking, or if you sold, exchanged, or otherwise disposed of any digital asset during the year. If your only activity was buying crypto with dollars and holding it, you check “No.”8Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions Answering “No” when the answer is “Yes” creates a false-statement risk on a signed return.
Form 1099-DA From Brokers
For transactions on or after January 1, 2025, crypto brokers report gross proceeds to the IRS on the new Form 1099-DA.9Internal Revenue Service. Final Regulations and Related IRS Guidance for Reporting by Brokers on Sales and Exchanges of Digital Assets For transactions on or after January 1, 2026, brokers also report cost basis for covered securities.10Internal Revenue Service. Instructions for Form 1099-DA (2025) The IRS now receives independent records of your sales to match against your return, the same way it does for stocks.
Foreign Exchange Accounts
Crypto held on a non-U.S. exchange can trigger foreign account reporting. If the aggregate value of your foreign financial accounts exceeds $10,000 at any point during the year, you may need to file FinCEN Form 114, the FBAR.11Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) At higher thresholds ($50,000 on the last day or $75,000 at any point for single filers), Form 8938 may also apply.12Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets? Penalties for missing these filings are steep and separate from any income tax issue.
When the SEC or CFTC Gets Involved
Two federal agencies share oversight of digital assets, and which one applies depends on what a token does.
The SEC applies the Howey Test to decide whether a token is an investment contract and therefore a security: money invested in a common enterprise with a reasonable expectation of profits derived from the efforts of others.13Securities and Exchange Commission. Framework for Investment Contract Analysis of Digital Assets Offerings that meet the test must be registered, and platforms trading them must register as securities exchanges. Since early 2025, the SEC’s Crypto Task Force has pushed toward rulemaking, and the Coinbase dismissal suggested that listing tokens on an exchange may no longer automatically draw enforcement.3Securities and Exchange Commission. SEC Announces Dismissal of Civil Enforcement Action
The CFTC treats major digital assets like Bitcoin as commodities under the Commodity Exchange Act. That authority lets it pursue fraud and manipulation in crypto spot markets, though it does not regulate those markets directly the way the SEC regulates securities exchanges.
Stablecoins Under the GENIUS Act
The GENIUS Act, signed on July 18, 2025, is the first comprehensive federal framework for payment stablecoins.14The White House. Fact Sheet: President Donald J. Trump Signs GENIUS Act into Law It targets stablecoins pegged one-to-one to the U.S. dollar and imposes three core requirements on issuers.
- Full reserve backing. Every outstanding stablecoin must be backed one-to-one by liquid assets such as U.S. dollars, short-term Treasury securities with 93 days or less remaining maturity, or deposits at insured banks.15Federal Register. Implementing the GENIUS Act for the Issuance of Stablecoins by Entities Subject to the Jurisdiction of the OCC
- Registration and approval. Issuers must register with the Office of the Comptroller of the Currency and receive approval before issuing. Foreign issuers must also register, consent to U.S. jurisdiction, and hold reserves in U.S. financial institutions.
- Anti-money laundering compliance. Issuers are subject to the Bank Secrecy Act, must maintain sanctions compliance programs and customer identification procedures, and must have the technical ability to freeze or seize stablecoins when legally required.
Monthly public disclosure of reserve composition is now mandatory, closing the self-reporting gap that produced collapses like TerraUSD in 2022.
Money Transmitter Rules and Sanctions
A business that exchanges, transmits, or administers digital assets for customers is a money transmitter under the Bank Secrecy Act and must register with FinCEN. Individuals who buy and hold crypto for personal use are not money transmitters.16Financial Crimes Enforcement Network. Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies Registered businesses must verify customer identity, file Currency Transaction Reports for cash activity above $10,000 in a single business day, and submit Suspicious Activity Reports when they detect patterns of illegal conduct. Willful violations carry criminal penalties up to five years in prison and $250,000 per violation, rising to 10 years and $500,000 when the conduct is part of a pattern involving more than $100,000 over 12 months.17Office of the Law Revision Counsel. 31 U.S. Code 5322 – Criminal Penalties
Sanctions law applies to crypto the same way it applies to dollars. You cannot send digital assets to anyone on the Treasury Department’s Specially Designated Nationals list, and you cannot process transactions involving sanctioned countries. OFAC applies a strict liability standard for civil penalties, so enforcement can proceed even if you did not know the counterparty was sanctioned.18U.S. Department of the Treasury. Sanctions Compliance Guidance for the Virtual Currency Industry Several crypto companies have already settled with OFAC over users in sanctioned jurisdictions. Ignorance is not a defense here.
State Rules for Crypto Businesses
Federal law sets the floor, and states add their own layer. New York’s BitLicense under 23 NYCRR Part 200 requires capital reserves, cybersecurity standards, and disaster recovery before a company can operate in the state.19Legal Information Institute. Part 200 – Virtual Currencies Wyoming classifies digital assets as property under the Uniform Commercial Code and takes a more open approach.20Justia. Wyoming Code 34-29-102 – Classification of Digital Assets as Property Most states require a money transmitter license, with fees, bonding, and compliance standards that differ widely. For individual users this patchwork stays mostly invisible; your right to own crypto does not depend on your state. For businesses, it is one of the first things to map out.
What Happens to Your Crypto When You Die
Nearly every state has adopted a version of the Revised Uniform Fiduciary Access to Digital Assets Act, which governs whether executors and trustees can reach digital property. The access it authorizes typically requires explicit written authorization in your will or trust. Without it, exchanges and wallet providers can lawfully refuse to release access, and a court order may not solve the problem.
If you hold meaningful crypto, your estate plan should name your digital assets, authorize your executor to access them, and give practical instructions for retrieval. For self-custodied crypto on a hardware wallet, that means making sure your executor can find the device and the recovery phrase. Crypto that no one can access effectively disappears, and that outcome is more common than people expect.