The IRS has been clear since 2014 that cryptocurrency is property, not currency. Every disposal is a capital transaction, taxed under the same rules as selling shares. There is no separate crypto regime, and no crypto-specific exemption.
You report crypto on Form 1040
Form 1040 carries a digital asset question at the top of page one. Answering yes routes you to the digital asset section further down. If you transacted during the year and received a Form 1099-DA, you have reporting obligations whether or not you owe tax – capital losses are still reportable.
The wash sales problem
This is the most consequential US-specific issue, and it catches people badly.
The wash sale rule stops you from selling an asset at a loss and immediately buying it back to crystallise that loss. Normally the disallowed loss is added to the cost basis of the replacement. But in 2025 the IRS began applying the rule to digital assets on a transaction-by-transaction basis.
The practical effect: if you sold ETH at a loss on Binance and bought ETH back on Coinbase an hour later, the loss may be disallowed. Worse, the replacement does not get an adjusted basis that shelters you if you then sell it at a profit. In a volatile market, this can turn a reported loss into an unexpected taxable gain.
It also makes exchange aggregation genuinely difficult. Spotting a wash sale means comparing timestamps across every account you hold, because the replacement can sit on a different platform.
Long-term versus short-term
The holding period clock starts when you acquire the asset and ends when you dispose of it.
- Over 12 months — long-term. Maximum federal rate of 20%, though higher-income taxpayers may pay 0% or 15%.
- Under 12 months — short-term. Taxed at your ordinary income rate, up to 37% federal.
Airdrops and staking rewards usually start a fresh holding period at the moment of receipt, because that is when you acquire the asset.
Income versus capital gain
Not all crypto is capital asset. Rewards received for work — mining, running a node for payment, or being paid in tokens — are ordinary income at fair market value on the day you receive it. That amount is added to your other income, and it also becomes your cost basis for a later sale.
Staking rewards are treated more favourably in many cases, depending on whether you had a right to receive them before you sold. The rules are still developing; see tax on staking.
Losses
Capital losses offset capital gains. If losses exceed gains, up to $3,000 offsets ordinary income each year and the rest carries forward indefinitely. The problem is that losses only become realisable if you are also realising gains — a portfolio that only went down produces a carry-forward, not a refund.
Form 1099-DA and what changed in 2025
Brokers and exchanges began issuing Form 1099-DA for transactions from 2025, covering gross proceeds. If the reported figure does not match your own records, you are not automatically wrong — you report your own basis and gain. Form 1099-DA does not reflect basis, so it cannot be used to calculate your gain on its own.
The gap between exchange-reported proceeds and your reconstructed position is where most disputes occur, particularly for wallets and DEXs that do not issue any form at all.
Getting the numbers right
The hard part is basis across multiple accounts. Tools that import from exchanges and wallets can reconstruct it, apply the transaction-level wash sale rule, and split long-term from short-term. For a portfolio spanning Coinbase, Kraken, a hardware wallet and several DEXs, that reconstruction is not practical by hand.
This is general information, not tax advice. The IRS rules change — confirm your position with a qualified tax professional.