Bitcoin and Taxes (US Basics)

Owning bitcoin in the United States is legal and, at tax time, fairly ordinary: the rules are the same ones that apply to stocks, with a few twists. This page covers the basics a beginner needs to know so nothing comes as a surprise next April.

The IRS treats bitcoin as property

Since 2014 the IRS has classified bitcoin and other digital assets as property, not currency. That single decision drives everything else. When you dispose of property for more than you paid, you have a capital gain that is taxed. When you dispose of it for less, you have a capital loss that can offset gains.

What is not taxable

• Buying bitcoin with US dollars.
• Holding it, no matter how much the price moves.
• Moving it between wallets and accounts you own, such as withdrawing from an exchange to your own hardware wallet. (Keep a record so you can show it was a transfer, not a sale.)
• Giving it as a gift, within the limits described below.
• Donating it to a qualified charity, which can also earn you a deduction.

What is taxable

Any time you dispose of bitcoin, you have a taxable event, and you owe tax on the difference between what you got and what you paid. That includes:

• Selling bitcoin for dollars.
• Swapping bitcoin for another coin, or another coin for bitcoin. A coin-to-coin trade is a sale of one and a purchase of the other, even though no dollars were involved.
• Spending bitcoin on goods or services. Buying a $5 coffee with bitcoin you bought for $3 is a $2 capital gain. Yes, really; this is the rule that most surprises newcomers.

Congress has debated a “de minimis” exemption that would ignore small gains on everyday purchases, and several bills proposing one were introduced in 2025 and 2026. As of September 2026 none had become law, so every purchase still counts.

Short-term versus long-term gains

How long you held the bitcoin before disposing of it decides the tax rate. If you held it for one year or less, the gain is short-term and taxed as ordinary income, at the same rate as your salary. If you held it for more than one year, the gain is long-term and taxed at the lower long-term capital-gains rates, which are 0, 15, or 20 percent depending on your total income. High earners may owe an extra 3.8 percent net investment income tax on top.

Losses work in your favor. Capital losses offset capital gains, and up to $3,000 of net loss per year can offset ordinary income, with the rest carried forward to future years.

One quirk: the “wash sale” rule that stops stock investors from selling at a loss and immediately buying back has not, as of 2026, been extended to bitcoin, although Congress has proposed doing so. Check the current status before relying on that.

Cost basis, and the wallet-by-wallet rule

Your cost basis is what you paid for a particular amount of bitcoin, including fees. Gain or loss is sale price minus basis. Because you probably bought at several different prices, when you sell part of your holdings you need a rule for which coins you sold. The default is FIFO, first in, first out: the oldest coins go first. You can instead specifically identify which lots you are selling, if your records support it, which can lower your tax bill.

Starting January 1, 2025, the IRS requires basis to be tracked wallet by wallet and account by account. Before then, many people treated all their bitcoin as one big pool and picked the most favorable lot regardless of where it sat. That is no longer allowed: coins on Kraken, coins on Coinbase, and coins in your hardware wallet are three separate ledgers, each with its own lots. The IRS offered a one-time safe harbor (Revenue Procedure 2024-28) to let people allocate their existing basis across wallets as of that date.

Practically, this means: when you transfer coins from an exchange to your own wallet, write down the date, amount, and the basis of the coins you moved. The basis travels with the coins; the exchange will not track it for you once they leave.

Form 1099-DA: the exchange now reports to the IRS

Form 1099-DA, “Digital Asset Proceeds From Broker Transactions,” is the crypto equivalent of the 1099-B that stock brokers send. US exchanges were required to issue it for the first time in early 2026, covering sales made during tax year 2025. That first-year form reports only gross proceeds, the total dollar amount you received from sales, not what you paid.

For tax year 2026, the form you receive in early 2027, brokers must also report cost basis, but only for “covered” coins: ones you bought on that exchange after 2025 and kept there until you sold. Coins you moved in from elsewhere will show proceeds with no basis, and it is on you to supply it. If you cannot, the IRS may treat the basis as zero and tax the entire amount.

The IRS receives a copy of every 1099-DA. If the numbers on your return do not match, expect a letter.

The question on Form 1040

Near the top of the main tax form is a yes-or-no question. For 2025 returns it reads: “At any time during 2025, 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)?”

Buying with dollars and holding is a “No.” Selling, swapping, spending, or being paid in bitcoin is a “Yes.” Answer honestly; it is signed under penalty of perjury.

Gifts and income

Gifts. Giving bitcoin away is not a sale, so the giver owes no capital-gains tax. For 2026 you can give up to $19,000 per recipient without filing a gift-tax return, and even above that a return is usually just paperwork against a lifetime exemption. The recipient takes over your cost basis and holding period, and owes tax only when they eventually dispose of the coins.

Income. Bitcoin you receive as payment for work, from mining, or from staking or “rewards” programs is ordinary income, valued in dollars at the moment you received it. That dollar amount also becomes your cost basis for the coins, so you are not taxed twice on the same value when you later sell.

Record keeping and software

For every purchase, sale, swap, transfer, and payment, keep the date, the amount of bitcoin, the dollar value at the time, the fees, and which wallet or exchange it involved. Download your exchange’s transaction history every year; exchanges close and records vanish.

If you make more than a handful of transactions, crypto tax software will save you hours. Services such as Koinly, CoinTracker, CoinLedger, and ZenLedger import exchange and wallet histories, apply the lot rules, and produce the Form 8949 and Schedule D you need. Most charge based on the number of transactions. We do not have affiliate relationships with any of them.

When to get a professional

If you only bought and held, or sold once or twice on a single exchange, standard tax software can handle it. Talk to a CPA or enrolled agent who works with digital assets if any of these apply: you traded across several exchanges or wallets, you were paid in bitcoin or mined it, you have coins with unknown basis, you skipped reporting in past years and want to fix it, or the amounts are large enough that a mistake would hurt. The fee is usually small next to the cost of getting it wrong.

Next

• How to buy bitcoin: choosing an exchange and making your first purchase.
• Keeping your bitcoin safe: the scams and mistakes that cost people far more than taxes do.