Cryptocurrency taxes work similarly to capital gains or losses: you only owe taxes when disposing of your coins, either through selling, trading, or spending them.
IRS agents can monitor cryptocurrency transactions by analyzing blockchains and matching anonymous wallets with known individuals. Beginning 2026, major exchanges will need to submit 1099 forms with detailed records as required by IRS.
What is a Cryptocurrency?
Cryptocurrencies, commonly referred to as cryptos, are digital forms of money which serve as online payment systems with low transfer fees worldwide. Since they’re unbacked by any central bank or government body, their management relies on peer-to-peer networks managed by computers running free software.
Bitcoin is the best-known and largest cryptocurrency; however, many other cryptographic assets also exist. Their values can be estimated by considering both how many coins exist and their associated prices; their market capitalization provides further insight.
Cryptocurrencies differ from traditional currencies in that they are unregulated by governments, making them volatile in value. According to the IRS, they are considered property, so any profits or losses from transactions involving cryptocurrencies is taxed as capital gains. Some stablecoins track existing fiat currencies like dollars (sometimes known as crypto dollars). Both the Federal Reserve and Treasury Department recommend strong regulations for these stablecoins.
What is a Gain or Loss in a Cryptocurrency Transaction?
Cryptocurrency is one of today’s most exciting emerging technologies, but like any asset or investment it is subject to taxation. When selling or trading cryptocurrency and its value has increased since purchase, you will owe taxes.
Gains and losses are determined using the Property Rule. When selling crypto for cash, a gain or loss equal to the sales price minus your tax basis in it will be recognized. Receiving crypto in exchange for performing services or in connection with hard forks of the blockchain network should also be reported as income or gain; similar principles apply if receiving free crypto from airdrops, software upgrades or any other incentives; though rules regarding businesses transactions may be more complex; nonetheless there may be deductions available; maintaining records is vital.
What is a Taxable Event in a Cryptocurrency Transaction?
Due to how the IRS considers cryptocurrency to be property, any time you sell or use crypto that has appreciated in value since you bought it is taxable event. This could include trading your crypto for real currency or goods and services, mining rewards, staking rewards or receiving hard fork or airdrop giveaways.
When selling cryptocurrency, capital gains taxes may apply if your proceeds from sale surpass your cost basis in it. To calculate this figure, subtract sales price from purchase price to determine your cost basis in each coin sold.
Utilizing cryptocurrency to purchase something is not considered a taxable event, though you should report any goods or services acquired using cryptocurrency on Form 1099-MISC or similar tax forms. Also be sure to refer back to our Cryptocurrency Tax Guide for further insight on this topic.
What is a Taxable Transaction in a Cryptocurrency Transaction?
Taxable transactions occur whenever you sell or exchange cryptocurrency for another type of virtual coin. When selling, subtract your cost basis (the total of fees plus purchase price) from the sale price to determine whether there has been a capital gain or loss and then calculate whether any difference constitutes taxable income.
Mining crypto can be considered a taxable event if operated as a business and deducting expenses is possible; otherwise you must report earnings based on their fair market value at the time of mining.
The Internal Revenue Service uses information provided to them from major exchanges and contractors like Chainalysis to match anonymous wallets to known individuals in order to detect and prevent tax cheating and prevent revenue loss. Instead of creating special tax treatment for cryptocurrency, Congress should focus on strengthening enforcement and taxpayer education measures so existing taxes are applied correctly.
