You sold some bitcoin at a profit and want to know how is crypto taxed before filing. In the US, the IRS treats crypto as property, so selling or trading it creates a capital gain or loss, while earning it creates income.
- Selling or trading: the gain is proceeds minus cost basis, and the rate depends on how long you held the coins.
- Earning crypto: mining rewards and similar receipts count as ordinary income.
- Holding, or moving coins between your own wallets: no tax is triggered.
This overview sits within our crypto guides for beginners. It covers US federal rules only, because other countries set their own.
Income or capital gains: how the IRS classifies crypto
The IRS treats crypto as property for tax purposes, as Koinly’s tax guide notes. The classification traces back to Notice 2014-21, which Windes describes as the IRS’s first guidance notice on cryptocurrencies, released in 2014.
Property treatment is why “income or capital gains?” has two answers. Disposing of coins at a gain produces a capital gain. Receiving coins as a reward produces income. The two follow different rules, so the first job is to label each transaction correctly.
- You disposed of crypto: you have a capital gain or loss. Short-term gains are subject to income tax, while long-term gains follow their own, separate rate schedule.
- You received crypto as income: Koinly’s guide places income such as mining rewards under income tax, so it is not a capital gain at all.
Keep these two buckets separate when you sort your records. A single year can contain both, and they end up on different parts of the return.
Which crypto events are taxable
According to CoinLedger, you only owe tax when you dispose of your crypto or earn it as income. That gives a simple test for any transaction: did you give up the asset, or did you receive new crypto as pay?
Events that create a tax bill
- Selling or trading: disposing of coins for a gain creates a capital gain that you report using your cost basis.
- Swapping one coin for another: Windes lists trading digital assets for other digital assets, such as converting one cryptocurrency into another, among the taxable disposals. A swap is a disposal even though no cash reaches your bank account.
- Mining: Windes states that receiving crypto from mining is treated the same as receiving ordinary income.
Events that do not
- Holding: owning coins that have risen in value creates no tax on its own. The bill arrives when you dispose of them or earn them.
- Moving coins between wallets you own: Koinly’s guide lists transfers between your own wallets as non-taxable. The mechanics of such a transfer are covered in how to send crypto to another wallet.
Selling at a loss is a separate topic. Whether the wash sale rule limits those losses is explained in does wash sale apply to crypto, so this guide stays with the gains side.
Short-term versus long-term gains
The holding period decides which tax scale applies to a disposal. Coins held for a year or less produce short-term gains. Coins held for more than a year produce long-term gains.
The gap matters because short-term gains share the ordinary income tax scale, while long-term gains have their own lower scale. The table shows how the two compare for a single filer.
| Holding period | Federal treatment | Planning use |
|---|---|---|
| A year or less (short-term) | Taxed as ordinary income. In 2026 the single-filer 12% bracket covers $12,401 to $50,400 of taxable income. | Add the gain to your other taxable income to see which bracket it reaches. |
| More than a year (long-term) | Taxed at 0%, 15% or 20%. In 2026 the single-filer 15% rate covers $49,451 to $545,500 of taxable income. | Often the cheaper route for coins you plan to keep. Confirm the acquisition date before selling. |
Bracket figures come from Koinly for the 12% bracket and CoinLedger for the long-term rates and the 15% range.
Brackets for other filing statuses differ from the single-filer ranges above, so check your own status before estimating. If a planned sale falls close to the one-year line, look at the purchase date first. Crossing it moves the gain from the ordinary scale to the long-term scale, which can change the bill noticeably.
Worked example: one trade, two outcomes
Every gain starts with cost basis. Koinly defines it as the original value of the asset, meaning how much it cost you. Its bitcoin example shows fees counting toward that figure: an investor bought 1 BTC for $33,660, including a 2% fee, and that full amount is the starting cost. The gain or loss is then proceeds minus cost basis.
CoinLedger’s example keeps the trade identical and changes only the holding period. Its investor, Sarah, has a $10,000 gain.
- Held a year or less: the $10,000 gain is taxed at 12%, so $1,200 is owed.
- Held more than a year: $9,450 of the gain is taxed at 0%, and the remainder is taxed at the 15% long-term rate.
Nothing about the trade itself differs between the two cases. Only the holding period moves the gain from one scale to the other. Her rates depend on her taxable income, so your own result will differ, but the pattern is a useful check on whether timing a sale is worth considering. The dollar figures here describe that example only, and your own proceeds and cost basis should replace them in any real calculation.
Reporting crypto on your return
Reporting runs through a few forms, and the order below follows the return. Windes notes that IRS Form 1040 was updated in 2022 to include a digital assets section, so the return itself asks about your activity.
- Answer the digital assets question on Form 1040. This is the entry point for every filer, including those who only held crypto.
- List each sale or trade on Form 8949. Windes says you may need Form 1099-B to report the sale or trade of digital assets, and totals then move to Schedule D. Koinly describes reporting crypto on Form 8949 and Schedule D.
- Report crypto income on Schedule 1. Koinly pairs Schedule 1 (or Schedule C) with Form 8949 and Schedule D for crypto reporting. Mining rewards belong on the income side rather than in the gain calculation.
Many crypto wallets do not provide IRS forms the way a standard brokerage account does, according to Avier Advisors. When no form arrives, the proceeds, cost basis and dates behind each Form 8949 line are yours to assemble. Missing paperwork does not remove the obligation, which is why good records matter.
Tax software and record keeping
Tax software suits anyone with many trades, several wallets or exchanges that issue no forms. Vendors such as Koinly say their crypto tax calculators can estimate your federal and state taxes, which helps you budget before the filing deadline.
Software only works from what you give it, so the records come first. For each disposal you need the date acquired, the cost including fees, the date sold and the proceeds. With those four items, the holding period and gain follow directly. Check any software output against your own transaction history before it goes onto Form 8949.
Business activity changes where income is reported, and anyone unsure how a particular transaction should be classified can take the records to a tax professional rather than guess.
Frequently asked questions
| Question | Answer |
|---|---|
| When does the holding period start? | Recap says the holding period begins on the day after you acquired the cryptocurrency and runs through the date you dispose of it. |
| Will my exchange send me a tax form? | Windes says exchanges must provide Form 1099-MISC if your combined crypto earnings exceed $600 in a year. Koinly adds that from 2026 the form for disposals will be the 1099-DA, with the 1099-MISC potentially still used for income. |
| Which schedule is used for crypto business income? | Recap says Schedule C should be used to report crypto income for a trade or business. |
| Is giving crypto away taxed? | Gifts fall under gift tax rules, which have an annual exclusion. Windes puts it at $19,000 as of 2025. |
