How is crypto taxed?
Last updated August 2026
Short answer
Almost every surprise in crypto tax comes from one classification decision. Because digital assets are property and not currency, moving between two tokens is a sale, and spending is a sale, which is not how anyone experiences using them.
Property, not currency
The IRS classifies digital assets as property. That single choice governs everything else: the rules that apply are the ones for selling property, not the ones for spending money.
Buying crypto with dollars is not a taxable event, and neither is holding it however long or however far it moves. Merely owning a digital asset creates nothing to report.
Transferring between wallets you control is also not a disposal, with one caveat covered below.
The three disposals people do not expect
Swapping one token for another is a sale of the first and a purchase of the second. No dollars are involved and tax is still due on the gain in the token you gave up.
Spending crypto on goods or services is a disposal at the value on the day you spend it. Buying a coffee with an asset that has appreciated realizes a gain on the coffee.
Paying a network fee in crypto can itself be a disposal, including on a transfer between your own wallets, because you are handing over an asset that has a basis and a market value.
Ordinary income, not capital gain
Mining rewards, staking rewards and airdrops are ordinary income at their fair market value in dollars at the moment you receive them. That amount is taxed at your marginal rate, whether or not you sell.
Crypto received as payment for goods, services or work is compensation, taxed as income in the same way wages are.
That amount then becomes your cost basis in the tokens. Selling them later produces a separate capital gain or loss on the change since receipt, so a single reward is taxed twice under two different regimes.
Holding period still decides the rate
Once you dispose, the ordinary capital gains rules apply. Held more than a year gives a long-term gain at 0%, 15% or 20%. Held a year or less gives a short-term gain taxed as ordinary income.
With frequent swapping, most gains end up short-term by default, which is the least favourable treatment available.
Losses work normally: they offset gains, and up to $3,000 a year can be deducted against ordinary income with the remainder carrying forward.
The reporting timetable, which is mid-change
Brokers must report gross proceeds on digital asset transactions effected on or after 1 January 2025, on the new Form 1099-DA.
Brokers must report cost basis on certain transactions effected on or after 1 January 2026. That is the year the form starts resembling a 1099-B.
For 2025 transactions reported in 2026, the IRS granted transition relief from penalties where a broker made a good faith effort to file correctly and on time. Most statements covering 2025 will therefore arrive without basis, and working out the gain is left to you.
Try it in Walnut
Walnut connects to your brokerage and reads the positions you hold there, so the traditional side of your portfolio is visible in one place while your crypto records live wherever you keep them.
Which means record keeping is on you
For at least the 2025 tax year, expect proceeds without basis. Reconstructing what you paid, across exchanges and wallets and years, is the taxpayer's problem.
Every acquisition needs a date, a dollar value at that moment, and a record of fees. Every disposal needs the same. Transfers between your own wallets need noting so they are not mistaken for sales.
This is far easier to do as you go than to reconstruct later, and the cost of not doing it is usually paying tax on a basis of zero.
The 1040 question, and the wash sale question
Every filer must answer the digital asset question on Form 1040, which asks whether you received, sold, exchanged or otherwise disposed of a digital asset during the year. It is answered by everyone, not only by people who traded.
On wash sales, the position is genuinely unsettled. The rule as written applies to stocks and securities, and digital assets are classified as property rather than securities, which is the basis for the common view that it does not currently apply to them. The IRS page on digital assets does not address the question, legislative proposals to extend the rule have been made repeatedly, and this is exactly the kind of point where a tax professional's current view is worth more than a general guide.
Sources
Classification, taxable events and the Form 1040 question are set out on the IRS Digital Assets page. The broker reporting timetable is in the IRS guidance on final regulations for broker reporting of digital assets and the Form 1099-DA guidance. Capital gain and loss treatment is in IRS Publication 550. IRS Topic 409 covers holding periods and rates. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax or investment advice; anything with a tax consequence is worth confirming with a tax professional.
FAQ
How is crypto taxed?
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As property, not currency. Selling for dollars, swapping one token for another, and spending it on goods or services are all taxable disposals producing a capital gain or loss. Mining, staking and airdrop rewards are ordinary income at their dollar value when received. Buying and holding is not taxable.
Do I owe tax for swapping one crypto for another?
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Yes. Because digital assets are property, exchanging one token for another is a sale of the first and a purchase of the second. Tax is due on the gain in the asset you gave up even though no dollars were involved at any point.
When will my exchange report my cost basis?
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Brokers must report gross proceeds on transactions effected from 1 January 2025, and cost basis on certain transactions effected from 1 January 2026. Most statements covering 2025 will arrive without basis, so calculating the gain is left to the taxpayer for that year.
Does the wash sale rule apply to crypto?
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It is unsettled. The rule as written applies to stocks and securities, and digital assets are classified as property rather than securities, which is the basis for the common view that it does not currently apply. Proposals to extend it have been made repeatedly, so this is worth confirming with a tax professional.