IRS

The IRS is the agency that decides how the United States taxes cryptocurrency, and since 2014 it has classified virtual currency as property rather than money for federal tax purposes. That single classification, set out in Notice 2014-21, is why buying a coffee with bitcoin, swapping one token for another, or cashing out to dollars can all trigger a taxable capital gain or loss, calculated against the original cost basis, much like selling stock or real estate.

Because crypto is treated as property, a sale held one year or less is taxed as a short-term gain at ordinary income rates, while a longer holding period qualifies for lower long-term capital gains rates. Crypto received as wages, mining rewards, staking rewards, or payment for services is instead taxed as ordinary income at its fair market value on the day it was received. Every Form 1040 since 2019 has also asked filers a direct yes/no question about digital asset activity during the year.

Enforcement has tightened. New broker reporting rules now require exchanges and custodial wallet providers to issue Form 1099-DA: gross proceeds for 2025 transactions, and cost basis starting with 2026 transactions, giving the IRS visibility into crypto sales comparable to stock brokerage reporting. This relies on the Know Your Customer (KYC) data exchanges collect at signup. Decentralized exchanges and self-custodied wallets sit outside these broker rules for now, but tax owed on any gain still applies regardless of where a trade happens.

Taxpayers remain responsible for tracking their own cost basis and reporting gains correctly, even in years when no 1099-DA is issued.