The IRS treats cryptocurrency as property, not currency — which means nearly every action you take with it is a taxable event, not just cashing out to dollars. Trading one coin for another, buying a coffee with Bitcoin, and receiving staking rewards all trigger tax consequences most people never track until a surprise bill or an IRS letter shows up. Here's what actually counts.
What Counts as a Taxable Event
| Action | Taxable? | Tax Type |
|---|---|---|
| Buying crypto with cash | No | — |
| Holding crypto (no sale) | No | — |
| Selling crypto for cash | Yes | Capital gain/loss |
| Trading crypto for crypto | Yes | Capital gain/loss |
| Spending crypto on goods/services | Yes | Capital gain/loss |
| Mining rewards | Yes | Ordinary income |
| Staking rewards | Yes | Ordinary income |
| Airdrops | Yes | Ordinary income |
| Transferring between your own wallets | No | — |
The "coin-to-coin trade" line is the one people miss most. Swapping $5,000 of Bitcoin for Ethereum feels like it's still "in crypto," but the IRS sees it as selling your Bitcoin for its fair market value and immediately buying Ethereum — a fully taxable disposal of the Bitcoin.
Cost Basis: The Number That Determines Your Gain
Example: you bought 0.5 BTC for $15,000 (including exchange fees) in March 2024. In June 2026 you sell it for $34,000. Your taxable gain is $19,000. Because you held it more than a year, it qualifies for long-term capital gains rates instead of ordinary income rates.
Short-Term vs. Long-Term: The Rate Gap Is Huge
| Holding Period | Tax Treatment | Rate (varies by income) |
|---|---|---|
| 1 year or less | Short-term capital gains | 10-37% (ordinary rates) |
| Over 1 year | Long-term capital gains | 0%, 15%, or 20% |
On a $19,000 gain, a filer in the 32% bracket would owe roughly $6,080 if the sale is short-term, versus roughly $2,850 at the 15% long-term rate — a difference of over $3,200 for holding the exact same asset just a little longer.
Staking and Mining: Taxed Twice, Sort Of
Say you earn 0.1 ETH in staking rewards when ETH is worth $3,200 — that's $320 of ordinary income, taxed at your regular bracket the moment you gain control of it. That $320 also becomes your cost basis for those 0.1 ETH. If you later sell them when ETH hits $4,000, you have an additional $80 capital gain ($400 sale value minus $320 basis) taxed separately. Two distinct tax events from one reward.
Losses Aren't Wasted — They Offset Gains
Capital losses offset capital gains dollar-for-dollar first. If you had $12,000 in crypto gains and $8,000 in crypto losses this year, you're only taxed on the net $4,000. If losses exceed gains, up to $3,000 of the excess offsets ordinary income annually, with the remainder carried forward indefinitely to future tax years.
Record-Keeping: What You Actually Need
- Date and time of every buy, sell, trade, and reward.
- Fair market value in USD at the time of each transaction.
- Fees paid — these add to cost basis and reduce taxable gain.
- Wallet-to-wallet transfers — not taxable, but track them so you don't lose cost-basis history when moving off an exchange.
Most major exchanges issue Form 1099-DA or similar reporting starting with recent tax years, but DeFi trades, wallet-to-wallet activity, and older transactions often aren't captured automatically — dedicated crypto tax software or a spreadsheet is still the safest way to reconcile everything before filing.