The IRS classifies cryptocurrency and other digital assets as property under Notice 2014-21. This means general tax principles that apply to property transactions β€” including capital gains rules β€” apply to every crypto transaction.

What Counts as a Taxable Event?

  • Selling crypto for US dollars or another fiat currency
  • Trading one cryptocurrency for another (e.g., Bitcoin to Ethereum)
  • Using crypto to buy goods or services
  • Receiving crypto as payment for work (ordinary income)
  • Receiving staking rewards or mining rewards (ordinary income at fair market value)

What Is NOT Taxable?

  • Buying crypto with US dollars and holding it
  • Transferring crypto between your own wallets
  • Receiving crypto as a gift (until you sell)

Short-Term vs Long-Term Capital Gains

If you held the crypto for one year or less before selling, gains are taxed as ordinary income. If held longer than one year, long-term capital gains rates apply (0%, 15%, or 20% depending on income).

How to Report

Report all crypto transactions on Form 8949 and summarize on Schedule D. The IRS added a digital assets question directly on Form 1040 β€” answer it honestly.

Sources: IRS Notice 2014-21; IRS Revenue Ruling 2023-14; IRS.gov/virtualcurrency