When you sell Bitcoin, the IRS treats it as selling property and taxes your profit as a capital gain. If you held the coins for a year or less, the gain is taxed at your ordinary income rate, which ranges from 10% to 37% for 2026. If you held for more than a year, the gain qualifies for long-term rates of 0%, 15%, or 20%. Higher earners may owe an additional 3.8% net investment income surtax on top of that, and most states tax the gain as well. Taxes on selling Bitcoin, in other words, depend on two things: how long you held and how much you earned.
What Counts as Selling
Cashing out to dollars is the obvious trigger, but several other actions are treated the same way. Each of the following is a taxable disposal of property:
- Trading Bitcoin for another cryptocurrency. Swapping BTC for ETH is treated as selling the Bitcoin at its market value at the moment of the swap.1Internal Revenue Service. Digital Assets
- Paying for goods or services with Bitcoin. Using appreciated coins to buy anything, even coffee, creates a taxable gain equal to the difference between your basis and the fair market value of what you bought.1Internal Revenue Service. Digital Assets
- Selling Bitcoin you earned from mining, staking, or an airdrop. That income was already taxed at ordinary rates when you received it, at fair market value. When you later sell those coins, any additional gain or loss is a separate capital transaction.2Internal Revenue Service. Revenue Ruling 2019-24
Buying Bitcoin with dollars is not taxable. Neither is moving coins between wallets or exchanges you own, even if a platform sends you an information return showing the transfer.3Internal Revenue Service. Frequently Asked Questions on Virtual Currency Transactions
Calculating the Gain or Loss
The math is simple in principle. Take what you received (your proceeds) and subtract what you paid, including any fees or commissions (your cost basis). A positive result is a capital gain. A negative result is a capital loss.
If you bought Bitcoin in a single purchase and sold it all at once, that is the whole calculation. It gets harder when you have accumulated coins at different prices and sell only some of them. Which coins did you sell? The IRS allows two answers.
FIFO and Specific Identification
The default is FIFO, first-in, first-out. The earliest coins you bought are treated as the first ones sold. If those early coins were cheap, FIFO tends to produce larger gains.
The alternative is specific identification, where you designate which particular units are being sold. That lets you pick high-cost lots to shrink a gain or, if it helps your overall tax picture, low-cost lots to realize more. Starting in 2025, the IRS requires you to identify the specific lot before the trade executes, not after the fact.4Internal Revenue Service. Instructions for Form 1099-DA (2026) Miss that step and FIFO applies automatically. Strategies you may have heard of like HIFO or LIFO are not separate IRS-approved methods; they only work if you identified the lots at the time of the trade.
Short-Term Rates: One Year or Less
Bitcoin sold within a year of purchase is taxed at the same rates as wages. For 2026, single-filer brackets are:5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% over $640,600
The brackets are progressive. A $100,000 short-term gain is not taxed entirely at 22%; only the portion inside each range is taxed at that range’s rate.
Long-Term Rates: More Than One Year
Hold for more than a year and the preferential capital gains schedule applies. For 2026, single-filer thresholds are:6Internal Revenue Service. Revenue Procedure 2025-32 – Tax Inflation Adjustments for Tax Year 2026
- 0% on taxable income up to $49,450
- 15% from $49,451 to $545,500
- 20% over $545,500
For married couples filing jointly, the 0% rate runs to $98,900, 15% covers income up to $613,700, and 20% applies above that. The gap between short-term and long-term treatment is large. A seller who would sit in the 35% ordinary bracket pays 15% on a long-term Bitcoin gain, nearly half the rate.7Office of the Law Revision Counsel. 26 US Code 1222 – Other Terms Relating to Capital Gains and Losses
The 3.8% Net Investment Income Surtax
Higher earners owe an additional 3.8% surtax on top of the capital gains rate. It applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds:8Internal Revenue Service. Topic No. 559, Net Investment Income Tax
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
These thresholds are not indexed for inflation, so they pull in more taxpayers each year. A large Bitcoin sale can push your income past them even if your salary alone would not. When the surtax hits, a 15% long-term gain effectively becomes 18.8%.
If You Sold at a Loss
Losses have real tax value. They offset capital gains dollar-for-dollar. Make $10,000 on one sale, lose $7,000 on another, and only the $3,000 net gain is taxed.
When losses exceed gains for the year, you can deduct up to $3,000 of the net loss against ordinary income ($1,500 if married filing separately). Anything left carries forward indefinitely and can be used under the same rules in future years.9Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Bitcoin sellers also have a timing advantage stock investors do not. The wash sale rule in IRC Section 1091, which blocks a loss deduction if you repurchase the same security within 30 days, currently covers only stock and securities. Digital assets have not been added. The White House has recommended extending the rule to crypto, but the change has not been enacted. For now, you can sell Bitcoin at a loss to lock in a deduction and buy it back immediately. That window may not stay open, so watch pending legislation.
Paying the Tax During the Year
Waiting until April to settle up on a large mid-year sale can trigger an underpayment penalty. The IRS expects taxes paid as income is earned.
You generally need quarterly estimated payments if you expect to owe at least $1,000 for 2026 after withholding and credits, and your withholding will cover less than 90% of your 2026 liability or 100% of your 2025 liability, whichever is smaller. If your 2025 adjusted gross income was above $150,000, the second threshold rises to 110% of 2025 tax.10Internal Revenue Service. Estimated Tax for Individuals
Due dates are April 15, June 15, September 15, and January 15 of the following year. Interest on underpayments changes quarterly; for early 2026, the rates are 7% in Q1 and 6% in Q2.11Internal Revenue Service. Quarterly Interest Rates If you also draw a salary, one practical fix is to increase your W-4 withholding for the rest of the year rather than mailing separate estimated payments.
Reporting the Sale on Your Return
Bitcoin sales go on Form 8949, which asks for a description of the asset, the acquisition date, the sale date, proceeds, and cost basis. Short-term transactions (held one year or less) sit in a different section from long-term ones.12Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
There is a shortcut. If your Form 1099-DA (or 1099-B) shows that cost basis was reported to the IRS and you have no adjustments, you can skip Form 8949 and report those totals directly on Schedule D. With brokers now required to report cost basis for 2026 sales, more sellers will qualify.12Internal Revenue Service. Instructions for Form 8949 – Sales and Other Dispositions of Capital Assets
Totals from Form 8949 flow to Schedule D of Form 1040, where your net capital gain or loss for the year is calculated and carried into your main return.13Internal Revenue Service. Instructions for Schedule D (Form 1040) – Capital Gains and Losses
The IRS cross-references Schedule D against the 1099 forms it receives from exchanges. A transaction that shows up on a 1099 but not on your return will likely draw a CP2000 notice proposing an adjustment with interest and possible penalties.14Internal Revenue Service. Understanding Your CP2000 Series Notice With Form 1099-DA now in effect, that matching is far more automated than it was a year or two ago.
Records You Need
For every sale you need the acquisition date, cost basis including fees, sale date, and proceeds. Starting with 2025, digital asset brokers began issuing Form 1099-DA to report proceeds to you and the IRS. For sales on or after January 1, 2026, brokers must also report cost basis for covered securities on that form.4Internal Revenue Service. Instructions for Form 1099-DA (2026)
Do not rely on the 1099-DA alone. Bitcoin moved between exchanges, bought peer-to-peer, or received as payment for work may not appear on any form. Download full transaction history from every exchange you have used and keep it alongside off-exchange records. If you cannot document cost basis and the IRS questions the sale, the agency can assign a basis of zero, which turns the entire proceeds into taxable gain.
State Taxes
Federal tax is only part of the bill. Most states tax capital gains as ordinary income, a handful charge rates above 10%, and a few have no income tax at all. Someone in a high-tax state could owe a combined federal, surtax, and state rate above 30% on a long-term gain. Check your state’s rules before assuming the federal number is the whole story.