Cryptocurrency & the IRS

As property, under Notice 2014-21, which the IRS has applied without change since. Every disposition is a sale: selling for dollars, swapping one coin for another, or paying for a coffee each produces a gain or loss equal to the value received less the basis of the coin given up. Coin received for services, for mining or for staking is ordinary income at its value on receipt, and that value becomes its basis. The holding period runs from acquisition, so coin held more than a year gets long-term rates. Nothing in the Code treats it as currency, which also means there is no foreign-currency exception for small personal gains.

Selling coin for dollars, exchanging one coin for another, and spending coin on goods or services are all dispositions with a gain or loss. Receiving coin as pay, as a mining reward or as a staking reward is ordinary income when you control it. An airdrop following a hard fork is income when it lands in a wallet you control, under Revenue Ruling 2019-24. Buying coin with dollars, holding it and moving it between wallets you own are not taxable, but the transfer has to be documented as a transfer or the broker's form will show it as a sale.

Mining operations are subject to income tax on the fair market value of the cryptocurrency received at the time it is mined, which creates an immediate tax liability even when miners hold the newly acquired assets and sell none of them. Mining may also trigger self-employment tax obligations depending on how the activity is conducted.

For every lot: the date acquired, the dollar value and fees at acquisition, and the same facts on disposition, kept by wallet or account because basis has been tracked that way since 2025. Keep the exchange CSV exports and the wallet addresses, since the exports stop being available when an exchange closes. If you choose specific identification, the record of the lot selected has to exist before the sale, not at filing. The retention period follows the statute of limitations, which is three years in the ordinary case and six where income was understated by more than 25 percent.

Yes, within limits that have narrowed. Holding more than a year moves gain to long-term rates. Harvesting losses works because Section 1091's wash-sale rule is written for stock and securities, though Congress has proposed closing that gap more than once, so the trade is checked against current law on the day it is made. Choosing which lot to sell, identified to the broker before the sale, controls the gain recognized. Like-kind treatment under Section 1031 has been unavailable since 2018. Charitable gifts of appreciated coin held over a year avoid the gain and deduct at fair market value, with a qualified appraisal required above $5,000. An entity makes sense for a mining or trading business, not for a portfolio.

The tools have changed more than the appetite. Since 2025 brokers report sales on Form 1099-DA, so unreported dispositions are caught by matching rather than by audit selection. Before that the IRS obtained customer records from major exchanges through John Doe summonses, and it still sends letters to taxpayers whose records it already holds. The Form 1040 digital-asset question, answered under penalties of perjury, converts an omission into a false statement. A taxpayer with unreported years can amend, or where the omission was willful, use the voluntary disclosure practice through IRS Criminal Investigation, but only before the IRS has started looking.