Common U.S. Crypto Tax FAQs: IRS Guidance and Expert Insights (2025)
Crypto taxes remain one of the most confusing areas for U.S. taxpayers. The IRS has issued detailed guidance clarifying how digital assets are taxed, and new reporting rules make compliance more important than ever. This blog covers the most common crypto-tax FAQs with answers from the IRS and expert sources.
Foundational IRS Guidance
How does the IRS treat cryptocurrency?
The IRS treats virtual currency as property. Standard capital gains and income tax rules apply, similar to stocks or real estate. This means you may owe taxes whenever you sell, trade, or dispose of crypto.
Do I pay tax when I sell or trade crypto?
Yes. Selling crypto for USD or exchanging one cryptocurrency for another (crypto-to-crypto trade) are taxable events. Each disposal must be reported.
When do I realize a gain or loss?
A gain or loss is realized whenever you sell, trade, or use cryptocurrency. This includes spending crypto on goods and services. The gain or loss is measured as the difference between your cost basis (what you paid) and the fair market value at disposal.
Is buying crypto with fiat taxable?
No. Purchasing cryptocurrency with USD or another fiat currency is not a taxable event. Taxes only apply when you dispose of or earn crypto.
Income-Related Crypto Activities
What about staking, mining, airdrops, or forks?
Staking rewards, mining proceeds, airdropped tokens, and hard-forked coins are all treated as taxable income. They must be reported at their fair market value at the time you receive them. If you later sell or trade these tokens, you must also report capital gains or losses.
Reporting Essentials
What forms are required?
You must answer 'Yes' to the digital asset question on IRS Form 1040 if you received, sold, or otherwise disposed of digital assets. Report gains and losses on Form 8949 and Schedule D. For income-related crypto activity, use Schedule 1 (additional income) or Schedule C (business income).
Are all crypto transactions reportable?
Yes. Every taxable crypto transaction must be included in your return. This includes trades, swaps, payments for goods or services, and transfers that affect cost basis. Accurate reporting ensures you avoid penalties.
Rates & Record-Keeping
What tax rates apply to crypto?
Crypto gains are taxed under capital gains rules. • Short-term gains (assets held less than 1 year) are taxed as ordinary income at rates between 10% and 37%. • Long-term gains (assets held over 1 year) are taxed at rates of 0%, 15%, or 20% depending on your income. • Certain NFTs may be treated as collectibles, with rates up to 28%.
How does the IRS track crypto?
The IRS uses multiple methods to track crypto transactions. They receive data from exchanges, analyze blockchain transactions, and now require brokers to issue Form 1099-DA starting in 2025 (with gains and cost basis reporting by 2026). Failing to report activity can trigger audits, penalties, and even criminal charges.
Conclusion
The IRS treats crypto as property, meaning taxes apply to disposals and income-generating activities. With stricter enforcement and new reporting requirements like Form 1099-DA, it is more important than ever for U.S. taxpayers to understand and accurately report their digital asset activity. Using tools like Awaken.tax can make compliance much easier by automating transaction tracking and reporting.
