Crypto taxes in 2026 are genuinely more complex than stock taxes, and the enforcement environment just got tighter. Form 1099-DA takes effect for the 2025 tax year, meaning every US exchange now reports your sales to the IRS. Gaps that let casual filers get away with sloppy record-keeping in prior years are mostly closed.
This guide covers what’s taxable, what isn’t, how to calculate it, and the traps that catch retail filers every year. It’s written for US readers filing in 2026 for the 2025 tax year. UK readers should see the HMRC crypto guide.
This is educational content. For specific tax advice, talk to a CPA. The IRS takes amended returns and voluntary disclosure seriously; the worst outcome is ignoring something they can already see.
The basics, fast
The IRS treats cryptocurrency as property. Every time you dispose of crypto, you either realize a capital gain or loss. “Dispose” means any of the following:
- Selling crypto for US dollars (obvious case).
- Trading one cryptocurrency for another (BTC for ETH, stablecoin for altcoin, anything). Yes, crypto-to-crypto trades are taxable even though you didn’t receive any dollars.
- Spending crypto to buy goods or services.
- Using crypto as payment for debts.
Buying crypto with dollars is not a disposition. Holding is not a disposition. Sending crypto between wallets you own is not a disposition.
Separately, you can earn crypto as income. This includes:
- Staking rewards.
- Mining rewards.
- Airdrops received.
- Getting paid in crypto for work, goods, or services.
- Interest earned on crypto lending platforms.
Crypto income is taxed as ordinary income at receipt. The fair market value on the day you received it is both your income and your cost basis going forward.
Every transaction you care about falls into one of these two categories: disposition (capital gain or loss) or income (ordinary income plus a cost basis for future disposition).
What Form 1099-DA changes
For tax years 2025 onwards, US crypto exchanges are required to issue Form 1099-DA for customer sales. The form shows:
- The customer’s identifying information.
- Gross proceeds from each sale.
- Cost basis (where known to the broker).
- Transaction dates.
The IRS receives a copy directly from the exchange. You receive yours in early 2026 for the 2025 tax year.
This is similar to how Form 1099-B has worked for stock sales for decades. The effect is that the IRS has a cross-check against your filed return. If you report $20,000 in crypto capital gains and the 1099-DA forms show $45,000 in proceeds, the IRS notices.
Cost basis on 1099-DA only works if the broker knows it. If you bought BTC on Coinbase and sold it on Coinbase, cost basis is fully tracked. If you bought BTC on Coinbase, withdrew to a wallet, then later deposited to Kraken and sold, Kraken doesn’t know what you paid. The proceeds will show on the Kraken 1099-DA but the cost basis may be blank. You’ll have to provide it.
Practical implication: centralize your record-keeping from day one. Every purchase, date, amount, fee. Tax software is the path of least resistance here.
Short-term vs long-term capital gains
Short-term applies to crypto held one year or less before disposition. Taxed at your ordinary income rate: 10%, 12%, 22%, 24%, 32%, 35%, or 37% federal depending on total income, plus state tax.
Long-term applies to crypto held more than one year. Taxed at 0%, 15%, or 20% federal depending on income, plus state tax.
The difference is usually substantial. For a $50,000 gain for a single filer in the 32% federal bracket, short-term tax is ~$16,000; long-term is $7,500. Crossing the one-year hold threshold can save tens of thousands on a single position.
When you sell, the holding period is tracked per-lot. If you bought 1 BTC in January 2024 and another 1 BTC in August 2025, and you sell 1 BTC in February 2026, your reported lot (under FIFO) is the January 2024 lot, long-term. Under Specific Identification, you can choose which lot to sell.
Cost basis methods
Three options in the US:
FIFO (First-In, First-Out). The default for most retail filers. The lot you bought earliest is the lot you sold first. Usually produces larger long-term gains when prices have been rising because the oldest lots have the lowest cost basis.
LIFO (Last-In, First-Out). The most recently purchased lot is the one sold first. Historically rare in the US but permitted.
Specific Identification (SpecID). You explicitly select which lot you’re selling at the time of sale. Most flexible, most paperwork. Requires the exchange or your own records to identify the lot at the time of sale (not retrospectively). For active traders, SpecID with tax software can save substantially compared to FIFO.
For 2025 filings and later, most 1099-DA reporting assumes FIFO unless you’ve instructed the exchange otherwise. If you want SpecID, check whether your exchange supports it and enable it for all trades going forward. You can’t retroactively re-elect for prior years.
Staking, mining, airdrops
These are ordinary income at receipt, then capital gain or loss at eventual sale.
Staking example. You stake 10 ETH in March 2025. In April 2025 you receive 0.05 ETH in rewards. ETH is $3,800 on the day of receipt. You owe ordinary income tax on $190 (0.05 × $3,800). Your cost basis for those 0.05 ETH going forward is $190. If you sell them in September 2025 for $250, you have a $60 short-term capital gain.
Every staking reward is technically a separate tax event. For a small retail position, this creates 100+ individual income events per year. Crypto tax software automates this; doing it by hand is impractical.
Mining. Same treatment. Fair market value at receipt is income; becomes cost basis for future sale.
Airdrops. Ordinary income at receipt based on fair market value. Unclaimed airdrops are not taxable until claimed; this is a point the IRS has clarified in recent guidance.
Liquid staking derivatives. stETH, rETH, jitoSOL, and similar tokens raise an interesting question: does swapping ETH for stETH trigger a disposition? The IRS hasn’t issued specific guidance. The defensible position is that wrapping is not a disposition because economically you retain the same exposure; this is how most tax software currently handles it. If you’re relying on this treatment for a large position, get a CPA opinion in writing.
DeFi activity
DeFi makes tax accounting harder. Every interaction with a smart contract can potentially create a taxable event depending on its legal characterization. The IRS has issued only sparse guidance on DeFi specifically, so much of the treatment below is the consensus of crypto-focused tax software and CPAs, not ironclad black-letter law.
Adding liquidity to a pool. Arguably a disposition of the deposited assets in exchange for an LP token. Most tax software treats it this way conservatively.
Removing liquidity. Disposition of the LP token in exchange for the underlying assets. Gains or losses on the LP token are realized.
Swapping tokens on a DEX. Clearly a disposition. BTC for USDC on Uniswap is taxable exactly like BTC for USDC on Coinbase.
Lending and borrowing. Lending typically not a disposition (you still own the asset). Interest earned is ordinary income. Borrowing against crypto is not a disposition either; you haven’t sold anything. Using borrowed funds to buy more crypto doesn’t change this.
Yield farming rewards. Ordinary income at receipt. Every reward token received is a separate income event at fair market value.
Bridging tokens between chains. Arguably not a disposition because you’re moving the same asset between representations. Conservative tax software sometimes treats it as a disposition anyway. This is an open question.
For serious DeFi activity (more than occasional swaps), a crypto-specialized CPA earns their fee.
Tax-loss harvesting
Crypto capital losses offset capital gains dollar-for-dollar, and up to $3,000 per year of ordinary income beyond that. Excess loss carries forward indefinitely.
Unlike stocks, crypto is not subject to the wash-sale rule (at least as of 2026). You can sell BTC at a loss, buy it back the next day, and keep the loss deduction. This allows deliberate tax-loss harvesting: selling positions at a loss late in the year to offset gains, rebuying, and reducing current-year tax liability without meaningfully changing your position.
Legislation to apply the wash-sale rule to crypto has been proposed multiple times and could pass in any given Congress. Plan for this to potentially change; for now, it remains a legitimate strategy.
Record-keeping and software
The right workflow for most retail filers:
- Use a dedicated crypto tax tool (Koinly, CoinLedger, ZenLedger, TokenTax, or similar).
- Connect every exchange via API where possible. For exchanges without API support, import the yearly CSV.
- For self-custody wallets, add the wallet address; most tools pull transaction history from the blockchain directly.
- Reconcile errors. Transfers between your own wallets need to be tagged as such to avoid being treated as dispositions. Missing cost basis needs to be filled in.
- Generate the Form 8949 and Schedule D output and import it into your main tax software (TurboTax, H&R Block) or provide to your CPA.
Budget $50-300 for the tax software depending on transaction volume. Free tiers exist for small filers.
The IRS enforcement reality
The IRS has used John Doe summonses repeatedly since 2018 to obtain customer data from major exchanges (Coinbase in 2017-2018, Kraken in 2021, and further expansions since). Customer-level data is no longer hypothetical; they have it.
With 1099-DA matching starting in 2026, automated mismatches between reported gains and reported 1099 data will generate IRS notices. Many will be correspondence-only notices asking for explanation; some will lead to audits.
If you have prior-year unreported crypto activity, file amended returns. The process is:
- Calculate what should have been reported for each prior year (tax software handles this).
- File Form 1040-X for each affected year with the corrected income and tax.
- Pay the additional tax plus interest.
Voluntary correction typically carries reduced penalties compared to being caught by an audit. Criminal exposure is limited in practice for non-fraudulent under-reporting; willful tax evasion is a different matter.
Talk to a CPA before filing amended returns if the amounts are large or if you have concerns about how the activity was originally classified.
Related reading
- Crypto taxes UK HMRC guide for UK filers.
- How to buy Bitcoin — where tax record-keeping starts.
- How to stake Ethereum — staking tax treatment in the context of yield strategy.
- Best crypto wallets 2026 — wallet record-keeping considerations.
Sources
- IRS Digital Assets landing page
- IRS Notice 2014-21 (foundational crypto tax guidance)
- IRS Revenue Ruling 2023-14 (staking guidance)
- Form 1099-DA instructions
- Form 8949 and Schedule D instructions
Educational content only, not personalized tax advice. Tax situations vary by individual circumstances. For significant positions, complex DeFi activity, or prior-year issues, work with a CPA familiar with cryptocurrency taxation. I am not a CPA.