US Crypto Taxes Begin With the Type of Transaction

A crypto portfolio's change in market value is not the same as its US federal taxable income. Tax treatment begins with the transaction: buying, selling, exchanging, receiving compensation and moving assets between a person's own wallets can have different consequences. The records must establish what actually happened.

The IRS generally treats digital assets as property. This explanation addresses common federal concepts for an individual holding assets as investments. Business activity, unusual transactions and state taxes can require a different analysis. The examples simplify fees and other facts where stated.

A swap can realize a gain without a dollar withdrawal

In a hypothetical example, an investor buys a token for $2,000 and later exchanges it for a materially different token worth $3,000. Ignoring fees, the disposition produces a $1,000 gain. Leaving the proceeds in crypto does not prevent the exchange from being a realization event.

The replacement asset generally starts with a $3,000 basis in that example. If it is later sold for $2,600, the second disposition produces a separate $400 loss before costs. The combined economic gain is $600, but the two transactions still need separate records. Their dates and holding periods can affect the return.

Income on receipt and gain on sale are separate

Compensation paid in digital assets generally creates income based on value when received under the applicable rules. The IRS's Revenue Ruling 2023-14 also addresses staking rewards for a cash-method taxpayer who has dominion and control, meaning the ability to sell, exchange or otherwise dispose of them.

Suppose taxable rewards are worth $200 when that recognition point is reached, and the same units are later sold for $260. In a simplified investment example, the first event creates $200 of ordinary income and a $200 basis. The later sale creates a $60 capital gain before costs. Treating the entire $260 as a second receipt of reward income would count the original value twice.

A fall in price creates another important distinction. If those units instead sell for $150, the example has $200 of initial income and a separate $50 capital loss. Capital-loss limitations and timing can prevent that loss from offsetting income in the way a trader's overall profit display suggests.

Track the units that leave the account

Holdings acquired at different prices can have different bases. Imagine one unit bought for $1,000 and another for $1,800. A sale of one unit for $2,200 creates a $1,200 gain if the first unit is treated as sold, or $400 if the second is validly identified as sold. The difference is $800.

That example does not mean a taxpayer can choose a preferred lot afterward without satisfying the rules. Identification requirements depend on custody arrangements and applicable guidance. The acquisition records, contemporaneous identification and exchange history need to support the method used.

A wallet transfer needs a paper trail

Moving an asset between wallets controlled by the same owner is generally different from selling it. Nevertheless, the receiving account may lack its original cost history. A transfer record should preserve the quantity, acquisition information and connection between the outgoing and incoming entries.

Fees require their own analysis, including how they were paid and which transaction they relate to. A transaction hash proves an on-chain movement but does not necessarily establish ownership, dollar value or tax basis. Exchange statements and valuation records supply information a block explorer may not contain.

Broker reporting does not calculate the complete return

The IRS says covered broker reporting of gross proceeds begins with transactions on or after January 1, 2025. Basis reporting applies to certain transactions on or after January 1, 2026. Coverage and transitional rules matter; a Form 1099-DA should not be assumed to include every wallet's history.

A proceeds figure is not a gain figure. A hypothetical report showing $10,000 of sales says little about taxable gain without the corresponding basis and transaction details. Missing or incomplete reporting does not remove the taxpayer's underlying obligation to report taxable activity.

Preserve evidence when assets move between services

An export from one exchange may omit the original purchase information for assets deposited from elsewhere. Retaining transaction identifiers and the corresponding records from the sending account helps reconcile that history. A missing basis field is a documentation problem to investigate, rather than a reliable statement of the asset's original cost. The complete record needs to follow the units across services.

Reconcile activity before calculating a rate

Dates, quantities, dollar values, fees, custody movements and the character of receipts should reconcile across accounts. Holding period and the taxpayer's circumstances then affect the applicable treatment. The economics of DeFi arrangements and stablecoin holdings do not by themselves determine their tax classification.

The useful starting point is a transaction ledger supported by records. Applying a single percentage to an exchange's profit estimate can miss taxable swaps, reward income and basis carried across wallets.