💵 Crypto Tax Reporting Guide 2025: How the IRS Treats Buying, Holding, and Selling Digital Assets
Cryptocurrency is no longer a fringe investment. Whether you bought Bitcoin years ago or recently started trading Ethereum, digital assets are now firmly on the IRS radar.
As of the end of 2025, crypto activity must be reported carefully on your tax return — but not every situation creates tax.
This guide explains how the IRS taxes digital assets, when buy-and-hold creates no tax,
and how gains, losses, and crypto income should be reported under current U.S. federal tax rules.
1. How the IRS Classifies Crypto
2. If You Only Buy and Hold
3. Selling or Swapping: How Gains Are Taxed
4. Mining, Staking, and Earning Crypto
5. Gifts, Inheritance, and Donations
6. How to Report Crypto on Your Tax Return
7. Real-World Examples
8. Key Takeaways
1️⃣ How the IRS Classifies Crypto
The IRS classifies cryptocurrency as property, not currency.
This treatment is similar to stocks or real estate and means that tax consequences arise only when the asset is disposed of.
- Buying crypto with U.S. dollars is not a taxable event.
- Selling, swapping, or using crypto may trigger capital gain or loss.
- All values must be measured in U.S. dollars at the time of the transaction.
2️⃣ If You Only Buy and Hold
Simply purchasing cryptocurrency with U.S. dollars and holding it in a wallet does not create taxable income.
Unrealized gains are not taxed under current U.S. federal law.
If you only purchased cryptocurrency with U.S. dollars and held it, IRS guidance allows you to answer “No” to the digital asset question on Form 1040.
However, if you sold, swapped, staked, mined, received rewards, or were paid in crypto, you must answer “Yes.”
3️⃣ Selling or Swapping: How Gains Are Taxed
When cryptocurrency is sold or exchanged, the taxable gain or loss is calculated as follows:
Capital Gain (or Loss) = Fair Market Value − Cost Basis
You bought 2 ETH for $6,000 and later sold them for $10,000.
→ $4,000 is a capital gain.
Held longer than one year, it qualifies as a long-term capital gain.
Exchanging one cryptocurrency for another (crypto-to-crypto swap) is also treated as a taxable disposition, even if no cash changes hands.
As of the end of 2025, the wash sale rule does not apply to cryptocurrency under U.S. federal law.
This means realizing a loss and repurchasing the same crypto shortly after is currently permitted — though future legislation may change this.
4️⃣ Mining, Staking, and Earning Crypto
Cryptocurrency received through mining, staking, or as compensation is treated as ordinary income based on its fair market value when received.
- Employees: Crypto wages are reported on Form W-2.
- Independent contractors: Reported on Form 1099-NEC and subject to self-employment tax.
- Miners: FMV at receipt is taxable income and becomes the cost basis.
5️⃣ Gifts, Inheritance, and Donations
- Gifts: Generally carry over the donor’s cost basis.
- Inheritance: Receives a step-up in basis to FMV at date of death.
- Charitable donations: Long-term holdings may be deductible at fair market value.
Donations over $5,000 require Form 8283.
6️⃣ How to Report Crypto on Your Tax Return
- Form 1040: Answer the digital asset question accurately.
- Form 8949: Report each sale or exchange.
- Schedule D: Summarize total capital gains and losses.
- Cost basis method: FIFO is standard, but specific identification
(such as HIFO) may be used if detailed records are maintained. - Form 1099-DA: Starting with certain 2025 transactions,
some brokers may issue this form. Coverage is limited, so personal records remain essential.
7️⃣ Real-World Scenarios
Purchased crypto with USD and held it → no tax yet.
Case 2 — Swap:
Exchanged one crypto for another → taxable event reported on Form 8949.
8️⃣ Key Takeaways
Cryptocurrency is taxable property under U.S. law.
Holding alone does not trigger tax, but transactions do.
Clear records and accurate reporting are essential, especially as new reporting forms such as Form 1099-DA are phased in.
Reflects U.S. federal tax guidance available as of December 2025, including the phased introduction of Form 1099-DA.
This content is for general educational purposes only and is based on U.S. federal tax law. State tax rules may differ.
Cryptocurrency taxation depends on individual facts and transaction history.
Consult a qualified U.S. tax professional or Enrolled Agent for personalized advice.
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