Cryptocurrency Taxes in 2026: How Crypto Is Taxed and Reported

Cryptocurrency feels new, but the tax rules that govern it are not. The IRS settled the core question years ago: crypto is property, not currency. Once you internalize that single fact, most of the confusion clears up, because the same gain-and-loss logic that applies to a share of stock applies to a coin. This guide explains how cryptocurrency taxes work in 2026, what counts as a taxable event, how short-term and long-term gains differ, and how the new 1099-DA broker form changes what the IRS can see.

Crypto is property, not currency

The foundational rule comes from longstanding IRS guidance on virtual currency: for federal tax purposes, digital assets are treated as property. General property-transaction principles apply.

This has two big consequences. First, you do not owe tax simply for holding crypto, no matter how much it appreciates on paper. Tax is triggered only when you dispose of it. Second, every disposition requires you to calculate a gain or loss by comparing the asset's value when you part with it to your cost basis: what you paid for it, including fees.

Because crypto is property, paying for a cup of coffee with Bitcoin is a taxable event in the eyes of the IRS, even though it feels like spending money. You are technically disposing of property and realizing whatever gain or loss has accrued since you acquired it.

The taxable events

Several common crypto actions create a tax obligation. It helps to split them into two groups: dispositions that create capital gains and losses, and receipts that create ordinary income.

Earning crypto is ordinary income first

When you receive crypto as compensation, as a staking or mining reward, or through an airdrop, the value on the day you receive it is ordinary income, taxed at your regular 10% to 37% bracket rates. That same value also becomes your cost basis going forward.

This creates a two-step tax life for earned crypto. Suppose you receive a staking reward worth $200 when it lands in your account. You report $200 of ordinary income now. If you later sell that reward when it is worth $260, you have a separate $60 capital gain on top. The $200 basis prevents you from being taxed twice on the same $200.

Staking rewards below $600: report the income, check the form separately

The common mistake is to treat $600 as an income-tax-free minimum. It is not. For a cash-method taxpayer, Revenue Ruling 2023-14 says validation rewards are gross income when the taxpayer gains dominion and control—the point when the taxpayer can sell, exchange, or otherwise dispose of the units. Value the units in U.S. dollars at that date and time, and preserve the platform statement or transaction history. If a protocol lockup or exchange restriction means you cannot control or transfer rewards yet, the exact timing needs a facts-based control analysis; do not automatically use the date the app first displays a pending amount.

A reporting threshold answers a different question: when a payer must send a particular form. The old $600 threshold applies to certain payments made before 2026. For payments in 2026, the IRS Form 1099-MISC/1099-NEC instructions generally use $2,000 for specified categories reported under §6041. That is not a blanket threshold for every staking transaction, exchange, reward program, or Form 1099-K. The exchange's role, payment type, and reporting rule matter. Even if the exchange sends no form, you still use the income rule that applies to the reward you controlled.

For example, if a staking reward becomes transferable when it is worth $180, the reporting analysis and income analysis are separate: the $180 can be gross income even if no information return is due from the payer. If you later sell those units for $230, the $180 value generally becomes basis and the later $50 appreciation is a separate property gain. Do not count the same $180 twice, and do not omit it because no form arrived. The 2025 Form 1040 instructions directed ordinary digital-asset income not reported elsewhere to line 8v for that form; use the instructions for the actual tax year when you file because line labels can change.

Short-term vs long-term capital gains

When you dispose of crypto, how long you held it determines the rate. The dividing line is one year.

Long-term treatment can cut the tax on a gain substantially. A taxpayer in the 24% ordinary bracket pays 24% on a short-term crypto gain but only 15% on the same gain if the asset was held just past the one-year mark. The IRS capital-gains rules apply to crypto exactly as they do to stocks.

Cost basis and the new 1099-DA

Your cost basis is what you paid to acquire the crypto, including transaction fees. Subtracting basis from proceeds gives your gain or loss. Keeping accurate basis records is the single hardest part of crypto taxes, because investors often buy across many dates, exchanges, and wallets.

The reporting landscape changed recently. The IRS introduced Form 1099-DA, a dedicated information return for digital-asset brokers, modeled on the 1099-B used for stock sales. Brokers must report gross proceeds for digital-asset sales on or after January 1, 2025. Starting with sales on or after January 1, 2026, they must also report cost basis, but only for covered assets, which generally means crypto you acquired on or after January 1, 2026 and held with that same broker, per the Form 1099-DA instructions. Coins you bought earlier, or moved in from another platform or your own wallet, can still show up without basis. The IRS digital-asset hub tracks the current reporting requirements.

The digital-asset question on Form 1040

Near the top of Form 1040, every individual filer must answer a yes-or-no digital-asset question. You answer yes if during the year you received, sold, exchanged, or otherwise disposed of a digital asset. You answer no if you only held crypto, moved it between your own wallets, or did nothing with it.

This question is mandatory and applies to everyone, not just active traders. Answer it truthfully even if you ultimately owe no tax, for example if your only activity was a small trade at a loss. A false answer is a separate problem from any underpayment.

A worked scenario

Consider Jordan, who bought 1 Ethereum for $1,800 in March, including fees. Eight months later, Jordan trades that Ethereum, now worth $2,400, for a stablecoin to lock in the value.

• Disposition: trading Ethereum for the stablecoin is a taxable event.
• Gain: $2,400 proceeds minus $1,800 basis equals a $600 gain.
• Holding period: eight months, so the gain is short-term and taxed at Jordan's ordinary bracket.

If Jordan had instead waited past the one-year mark before trading, the same $600 would be a long-term gain taxed at the lower capital-gains rate. The single decision of when to dispose of an asset can change the tax meaningfully.

Losses and tax-loss harvesting

Crypto losses are not wasted. Capital losses from selling or trading crypto first offset your capital gains for the year. If your losses exceed your gains, up to $3,000 of the net loss can offset ordinary income, and anything beyond that carries forward to future years.

Because crypto has historically been treated as property rather than a security, the wash-sale rule that applies to stocks has been applied differently to crypto, though rules in this area continue to change, so confirm the current treatment before acting. For the mechanics of using losses deliberately, see our tax-loss harvesting guide. The general principle from the IRS rules on capital gains and losses is that realized losses are a real tax asset when documented correctly.

A frozen exchange is not automatically a realized loss

If a centralized exchange freezes withdrawals or files for bankruptcy, keep the account balance, the exchange's legal terms, the bankruptcy claim, and later distributions separate in your records. A falling market value is not a sale. A freeze by itself also may leave you with a claim or ownership interest rather than a completed disposition, so it usually does not establish the date or amount of a deductible capital loss. The IRS Taxpayer Advocate Service's digital-asset loss discussion explains that an account frozen in bankruptcy generally is not a closed and completed transaction.

The later event matters. If you receive cash, crypto, or another asset in settlement of a claim, the transaction may require you to compare the amount realized with adjusted basis and report a disposition; the legal documents and nature of the claim can change that analysis. If a court plan distributes multiple recoveries over time, do not assume the first distribution tells you the final tax result. An exchange's Form 1099-DA may report a disposition but may not know the basis or bankruptcy context. Reconcile it with the court-approved plan, claim statements, wallet records, and tax documents. See the 1099-DA reconciliation checklist.

Also separate principal loss from reward income. In Chief Counsel Advice 202444009, the IRS concluded on its facts that rewards credited to an account while the taxpayer could sell or transfer them were income when credited, even though the platform later froze the account. Rewards that had accrued but were locked and uncredited before the freeze were not income on those stated facts. The advice is nonprecedential; it is not a blanket ruling for every platform. It shows why a later loss or freeze does not automatically erase income that was under your control earlier.

Do not label a loss "theft," "worthless," or "abandoned" just because recovery looks unlikely. Those labels have separate legal tests. In 2026, the permanent disallowance of miscellaneous itemized deductions under §67(g) also makes older explanations of worthless-property deductions stale; verify the current statute and return instructions before claiming one. If the exchange claim remains unresolved, preserve documents and ask a tax professional to identify the event that actually fixes your loss.

Recordkeeping that holds up

Good records are what separate a smooth crypto tax season from a stressful one. For every transaction, you want to keep:

• The date you acquired the asset and the date you disposed of it
• The cost basis, including fees, at acquisition
• The fair market value in dollars at the time of each disposition
• The purpose of the transaction (sale, trade, payment, reward)
• Records of transfers between your own wallets, to prove they were not taxable events

Many investors use portfolio-tracking or crypto-tax software that imports transaction histories from exchanges and computes gains automatically. Whatever method you choose, keep the underlying records for at least the period the IRS can examine your return. Reconstructing years of activity after the fact is far harder than logging it as you go.

This is educational information, not personalized tax advice. Digital-asset tax and reporting rules are evolving quickly, and individual situations vary. Confirm current requirements on IRS.gov and consult a CPA or tax professional experienced with crypto before filing.

Sources: IRS: Digital assets, IRS Revenue Ruling 2023-14, IRS 2026 Forms 1099 instructions, IRS 2025 Form 1040 instructions, IRS Chief Counsel Advice 202444009, Taxpayer Advocate Service: Digital-asset investment losses, IRS Topic 409: Capital gains and losses, IRS: About Form 1040.