The IRS treats cryptocurrency and other digital assets as property, not currency. So many everyday crypto transactions have tax consequences. In addition, brokers now report crypto sales to the IRS on a new form. This guide explains how cryptocurrency is taxed in 2026 and what to do if the IRS contacts you.
How cryptocurrency is taxed
Because crypto is property, you generally have a capital gain or loss when you dispose of it. Your gain or loss is the difference between what you receive and your cost basis. If you held the crypto more than a year, the gain is long-term and gets lower tax rates.
Taxable events
- Selling crypto for dollars or another currency
- Trading one crypto for another
- Using crypto to buy goods or services
Crypto that counts as income
- Crypto received as pay for work, which is taxed as wages or self-employment income
- Mining and staking rewards, generally taxed as income when you gain control of them
- Airdrops, generally taxed as income when you receive them
Usually not taxable
- Buying crypto with dollars and holding it
- Moving crypto between your own wallets or accounts
Form 1099-DA: brokers now report crypto sales
Starting with 2025 transactions, crypto brokers, such as exchanges, send Form 1099-DA to customers and the IRS. For 2025 sales, the form reports gross proceeds. Then, for many assets acquired in 2026 and later, brokers also report cost basis.
However, the form may not show your basis for older purchases or crypto moved from another platform. So keep your own records of what you paid. Otherwise, the IRS may treat your whole sale price as gain. For details, see the IRS page on understanding Form 1099-DA.
The digital asset question on Form 1040
Every Form 1040 asks whether you received or disposed of digital assets during the year. You must answer yes or no. If you sold, traded or earned crypto, answer yes and report the transactions, generally on Form 8949 and Schedule D.
What to do if you get an IRS crypto letter
The IRS has sent letters to many crypto owners who may not have reported transactions. For example, Letters 6173, 6174 and 6174-A warn that you may owe tax. Some letters require a response by a deadline.
- Don’t ignore it. Read the letter and note any deadline.
- Review your past returns. Check whether you reported all crypto sales and income.
- Amend if needed. If you missed something, filing an amended return may reduce penalties.
- Get help. A tax professional can reconstruct your cost basis and respond for you.
Learn more about our IRS notice and audit help.
Tips for crypto investors
- Track the date and cost of every purchase.
- Download transaction histories before you close an account.
- Consider selling losing positions to offset gains.
- Remember that California taxes crypto gains as regular income.
Get help with crypto taxes
We help investors report crypto correctly and respond to IRS letters. To discuss your situation, call (415) 842-2940 or book a free 15-minute call.