IRS Crypto Tax Rules in 2026: What Actually Gets Taxed

Crypto taxation in the United States rests on one old decision and two new mechanics. The old decision, in place since 2014, is that digital assets are property: not currency, not a special category, but property, which imports the entire capital-gains apparatus, basis, holding periods, disposals, into every wallet. The new mechanics arrived with the 2025 tax year: brokers now report your gross proceeds to the IRS on Form 1099-DA, and the agency’s safe-harbor rules require wallet-by-wallet basis tracking. Together they end the era in which crypto taxes were largely an honor system. This page covers what is taxed, what is not, the forms, and the traps.

Taxable events: the disposal principle

The organizing rule is that dispositions are taxed and acquisitions are not. Selling crypto for dollars is the obvious disposal; the ones that surprise filers are equally taxable: swapping one token for another (a disposal of the first at fair market value), spending crypto on goods or services (a disposal at the purchase price), and paying transaction costs in tokens. Each disposal produces gain or loss equal to proceeds minus cost basis, short-term at ordinary rates for assets held a year or less, long-term at preferential rates beyond that. Income events run on a parallel track: mining rewards, staking rewards (taxable when you gain dominion and control under the IRS’s 2023 revenue ruling), airdrops, and compensation paid in tokens are ordinary income at fair market value on receipt, and that value becomes your basis for the eventual disposal. Not taxable: buying crypto with dollars, holding through any amount of appreciation, moving assets between your own wallets, and gifting within the ordinary gift-tax exclusions.

The reporting revolution: 1099-DA and wallet-by-wallet

Two changes define the current era. First, broker reporting: custodial exchanges and brokers began filing Form 1099-DA for the 2025 tax year, reporting gross proceeds from customer sales to the IRS, with cost-basis reporting phasing in for 2026 transactions. The practical meaning is that the IRS now receives your sales figures directly, and mismatches between what brokers report and what returns show generate automated notices, exactly as they long have for securities. Decentralized and non-custodial activity is not broker-reported, but the on-ramps and off-ramps largely are, which is how the picture assembles. Second, basis allocation: since January 1, 2025, under the IRS safe-harbor framework, taxpayers must track cost basis wallet-by-wallet and account-by-account, retiring the universal pooling many filers used to cherry-pick lots across platforms. Specific identification of lots remains available within each wallet with adequate records; the default is first-in-first-out. The compliance upshot is unglamorous and decisive: contemporaneous records, acquisition dates, amounts, fair values, per wallet, are now the difference between a defensible return and an unanswerable notice, and the bridge-transaction bookkeeping habit our how-to guides urge exists for exactly this reason.

Forms, the 1040 question, and what still does not apply

The filing machinery: disposals are itemized on Form 8949 and summarized on Schedule D; ordinary-income events land on Schedule 1 or Schedule C (self-employment treatment, with expenses, for business-scale mining or validation); and every filer answers the digital-asset question on Form 1040’s first page, which asks whether you received, sold, exchanged, or otherwise disposed of digital assets during the year. Answering it falsely is itself a false-statement problem independent of any tax due, and checking yes for mere purchases or holding is not required, the question targets receipts and disposals. Two persistent quirks complete the picture. The wash-sale rule, which bars claiming losses on securities repurchased within thirty days, still does not apply to digital assets by statute, meaning loss harvesting with immediate repurchase remains mechanically available, a gap Congress has repeatedly proposed closing, watch this space, it is the likeliest near-term change. And the $10,000 business-receipt reporting requirement enacted for digital assets remains deferred pending regulations for crypto specifically. State taxation layers on top of all of it, with most states following federal characterization at their own rates.

State taxes and the records that survive an audit

Federal rules are half the bill: most states tax crypto gains as income at their own rates, following federal characterization, which makes state residency a material variable, the zero-income-tax states (Texas, Florida, Washington, Wyoming among them) tax no crypto gains at all, while California’s top rate stacks over 13% onto federal liability, and a handful of states are experimenting with crypto-specific provisions, from payment acceptance to targeted exemptions. State filing follows federal in structure, gains flow from the federal return, but audits do not: state agencies increasingly run their own matching against the same broker data.

The compliance core, at both levels, is records, and the standard is knowable in advance: for every acquisition, the date, amount, source, and dollar value at receipt; for every disposal, the date, proceeds, and the specific lots disposed; per wallet, per account, since the 2025 allocation rules. Exchange histories cover custodial activity, but bridges, self-custody moves, DeFi interactions, and chain migrations are where reconstructions fail years later, which is why the record habit belongs at transaction time, the hashes, the amounts, the dates, captured when they are free, because they are unpurchasable retroactively as interfaces disappear. Tax software can assemble much of the picture from addresses and API keys; its output is only as complete as the wallet list it is given, and the filer, not the software, signs the return.