How Is Cryptocurrency Taxed?

Last updated: October 26, 2026 · Reviewed by the CryptoTaxAI editorial team · 9 min read

Crypto taxation looks complicated until you see the structure. Everything flows from one rule — the IRS treats cryptocurrency as property — and then splits into two tracks: disposing of crypto triggers capital gains or losses, while receiving crypto as a reward or payment triggers ordinary income.

This guide walks through both tracks, the 2026 rates for each, how they interact when you earn and later sell, and exactly where each number lands on your tax return.

The Property Rule

Under IRS Notice 2014-21, cryptocurrency is treated as property for federal tax purposes — not as currency. That single classification drives everything: disposing of crypto works like selling stock or real estate, not like spending foreign cash.

Because it's property, you have a cost basis — generally what you paid, plus fees — and you realize a gain or loss when you dispose of it. If you received the crypto as income first (staking rewards, mining, airdrops, wages), your basis is generally the fair market value you reported as income. The IRS has been explicit that general tax principles for property transactions apply to digital assets.

Track 1: Capital Gains and Losses

A capital gain or loss happens when you dispose of crypto: selling for dollars, swapping one coin for another, or spending it on goods and services. Your gain or loss is the difference between what you received (fair market value) and your cost basis.

Holding period decides the tax character. Hold the asset for more than one year — the clock starts the day after you acquired it — and the gain is long-term; one year or less is short-term. Short-term gains are taxed as ordinary income, at the 2026 federal rates of 10% to 37% depending on your bracket. Long-term gains get preferential rates of 0%, 15%, or 20% based on taxable income (see the table below).

Losses work in the other direction: capital losses first offset capital gains, and if losses exceed gains, you can generally deduct up to $3,000 of net loss per year against ordinary income ($1,500 if married filing separately), carrying any remainder forward. IRS Topic 409 covers the netting mechanics.

2026 Long-Term Capital Gains Rates

For the 2026 tax year (returns filed in 2027), long-term capital gains are taxed at 0%, 15%, or 20% depending on taxable income. Per Rev. Proc. 2025-32, the thresholds are generally:

2026 tax year (filed in 2027). Source: Rev. Proc. 2025-32.

Taxable income between the two figures is generally taxed at 15%. Higher earners should also note the 3.8% Net Investment Income Tax, which generally applies above $200,000 of modified adjusted gross income for single filers and $250,000 for joint filers. These are federal figures — your state may tax capital gains separately. A qualified tax professional can confirm how the brackets apply to you.

Track 2: Ordinary Income

Not all crypto tax comes from selling. When you receive crypto as compensation or a reward, it's generally ordinary income at fair market value when received:

• Staking rewards — includible in gross income when you gain dominion and control (Rev. Rul. 2023-14), at fair market value.
• Mining rewards — generally ordinary income at fair market value on receipt (IRS virtual currency FAQs).
• Airdrops — generally ordinary income at fair market value when received (Rev. Rul. 2019-24).
• Wages or payments for services — ordinary income at fair market value when received, subject to normal withholding and reporting.

This income is taxed at your marginal rate — 10% to 37% for 2026 — the same bracket that applies to short-term capital gains.

Three look-alike cases are worth separating out. Moving crypto between wallets you own is not a taxable event at all — see whether transfers between your own wallets are taxable. NFTs follow the same property rules, with extra wrinkles for creators and collectors, covered in how NFTs are taxed. And airdrops count as income when you gain control of the coins, not when you later sell them — the details are in our airdrops and forks tax guide.

How the Two Tracks Interact

The tracks connect through cost basis. Suppose you earn $500 of staking rewards and report it as ordinary income: your basis in those coins is now $500. Sell them later for $700, and you have a $200 capital gain — taxed on Track 1 according to your holding period.

The reverse never double-taxes you: income already reported isn't taxed again on sale; only the change in value is. This is why records matter twice — once for the income event, once for the later disposition. Lose the first number and you'll miscalculate the second.

Where It Goes on Your Return

Capital gains and losses from crypto dispositions go on Form 8949 (one line per transaction) and flow to Schedule D. Ordinary income from staking, mining, or airdrops is generally reported as other income; wages paid in crypto follow normal wage reporting.

Everyone must also answer the Form 1040 digital asset question truthfully — it covers receiving, selling, exchanging, or otherwise acquiring or disposing of digital assets during the year. Broker reporting is expanding as well: Form 1099-DA is being phased in, so exchanges will increasingly report proceeds to the IRS. Even where no form arrives, you're responsible for reporting. When your activity spans both tracks, a qualified tax professional can help you file correctly.

Worked examples and next steps

• Crypto Tax Calculator — Estimate your 2026 bill from your own gains, losses, and income.
• Form 8949 for Crypto: Line-by-Line Guide — Where each transaction gets reported, box by box.
• How Are NFTs Taxed? — Buying, selling, and creating NFTs under the property rules.
• Crypto Airdrops and Forks Tax Guide — When dropped coins become income, and what basis they take.
• Is Transferring Crypto Between Your Own Wallets Taxable? — Why moving your own coins is not a taxable event, and the records to keep anyway.

Sources

• IRS — Digital Assets (Notice 2014-21 property treatment)
• IRS — Virtual Currency Transaction FAQs
• IRS — Topic 409, Capital Gains and Losses
• IRS — Tax inflation adjustments for 2026 (Rev. Proc. 2025-32)

Frequently asked questions

Keep learning

• What Counts as Taxable Crypto? — The full map of taxable vs. non-taxable crypto events..
• Crypto Capital Gains Tax 2026 — Rates, thresholds, and holding periods for the 2026 tax year..
• How to Report Crypto Taxes — Forms, deadlines, and the filing walkthrough..