Cryptocurrency & Digital Assets in the United States
2026 Tax Rules, Reporting & Compliance Guide

Overview

Cryptocurrency is treated as property under U.S. tax law — not as currency. This fundamental classification, established by IRS Notice 2014-21 and confirmed through subsequent guidance, means that every sale, trade, swap, or use of cryptocurrency can trigger a taxable event requiring gain or loss calculation and reporting.

This guide explains how cryptocurrency transactions are taxed, how staking and mining income is reported, how the new Form 1099-DA reporting requirements phase in through 2026, and what planning strategies are available to U.S. taxpayers who hold, trade, or earn digital assets. References to wash sale rules, capital gains rates, and passive income classification build on the prior guides in this series.

Why This Matters

Crypto taxation is uniquely complex because nearly every interaction with digital assets — trading, swapping, spending, receiving rewards, participating in DeFi protocols — creates a reportable taxable event. Unlike stocks, where a brokerage tracks transactions automatically, crypto historically required taxpayers to self-report from incomplete exchange data and private wallet logs.

Crypto as Property — Core Framework

IRS Notice 2014-21 established that convertible virtual currency is treated as property for federal income tax purposes. This classification drives all downstream tax consequences:

• Capital gains rules apply: When crypto is sold, traded, or disposed of, the gain or loss is the difference between the amount realized (fair market value of what was received) and the adjusted cost basis of the crypto disposed of.
• Holding period determines rate: Assets held more than one year qualify for long-term capital gains rates (0%, 15%, 20%). Assets held one year or less are taxed at ordinary income rates — up to 37% in 2026.
• Every transaction lot is separate: Each purchase of crypto establishes a separate tax lot with its own cost basis and acquisition date. Selling requires identifying which lot is being sold — and that identification determines the gain or loss.
• Foreign currency rules do not apply: Unlike foreign currency, crypto is not subject to §988 ordinary income treatment on currency transactions. Gains and losses are capital in character, not ordinary.
• Like-kind exchange rules do not apply: Since the TCJA (effective January 1, 2018), §1031 like-kind exchanges apply to real property only. Crypto-to-crypto trades are taxable events — no deferral is available.

Taxable vs. Non-Taxable Events

Understanding which events trigger a taxable event is the first step in crypto tax compliance. The classification determines whether a gain or loss must be calculated and reported.

Capital Gains — 2026 Rates

Crypto capital gains follow the same rate structure as other capital assets. The rate depends on the holding period and the taxpayer's taxable income.

Capital Loss Rules

• Crypto capital losses offset crypto capital gains of the same character (short-term vs. long-term). Net losses of one type may offset the other.
• If total capital losses exceed total capital gains, up to $3,000 of net capital loss may be deducted against ordinary income per year. Unused losses carry forward indefinitely.
• Losses are reported on Form 8949 and Schedule D — the same as stock losses. Each transaction requires a separate line entry or a summary attachment.

Staking, Mining, Airdrops & Rewards

Crypto earned — as opposed to crypto purchased — is treated as ordinary income at the fair market value on the date received. This income is reported separately from capital gains and establishes a new cost basis for the received tokens.

Staking Rewards

• Staking rewards are taxable as ordinary income when received, at the fair market value of the tokens on the date of receipt. IRS confirmed this treatment in Revenue Ruling 2023-14.
• The FMV at receipt becomes the cost basis for the staked tokens. When those tokens are later sold, only the gain or loss above that basis is a capital event.
• Staking rewards are reported on Schedule 1 as other income — not on Schedule C, unless the taxpayer is in the business of staking as a trade or business.
• Taxpayers who cannot sell or transfer staked tokens immediately upon receipt (due to lock-up periods) may argue that the rewards are not "income" until the restriction lifts — but IRS guidance currently treats receipt as the taxable moment regardless of lock-up.

Mining Income

• Mining income is taxable as ordinary income at the FMV of the coins on the date mined — the same as staking rewards.
• If mining is conducted as a trade or business(regular, continuous activity with profit motive), the income is reported on Schedule C and is subject to self-employment tax(15.3% on the first $184,500 of net earnings in 2026).
• Business miners may deduct mining-related expenses on Schedule C: electricity, hardware depreciation (including 100% bonus depreciation under OBBBA for qualifying equipment), internet, and facilities.
• Hobby miners (casual, not a business) report income on Schedule 1. Hobby expenses are not deductible under the current rules.

Airdrops and Hard Forks

• Airdrops: Tokens received as an airdrop (distributed to existing wallet holders) are taxable as ordinary income at FMV on the date received — even if not solicited and even if the tokens have no immediate liquidity.
• Hard forks: If a hard fork results in a taxpayer receiving new cryptocurrency, the new tokens are taxable as ordinary income at FMV when dominion and control is established. If the new chain is not accessible or has no market value, income recognition may be deferred until access is established.
• Both airdrops and hard fork tokens must be reported even if the taxpayer does not sell them. The received FMV is income; subsequent appreciation is a capital event when sold.

Form 1099-DA — 2026 Rollout

Form 1099-DA (Digital Asset Proceeds from Broker Transactions) is the IRS's first form dedicated specifically to digital asset reporting. It is modeled on Form 1099-B and is designed to bring crypto reporting in line with traditional securities reporting.

Phase-In Timeline

Who Issues Form 1099-DA

• Centralized exchanges(Coinbase, Kraken, Gemini, Binance.US, etc.) that effect transactions on behalf of customers are the primary reporting entities.
• Hosted wallet providers and payment processors that facilitate digital asset transactions are also covered.
• Real estate settlement agents must report when digital assets are used in real estate transactions with closing dates on or after January 1, 2026.
• DeFi protocols and self-hosted wallets are not covered under the current regulations. Transactions through decentralized exchanges (Uniswap, etc.) or from private wallets are not reported on Form 1099-DA — the taxpayer remains solely responsible for self-reporting.

What Form 1099-DA Does Not Fix

• Form 1099-DA reports only transactions through covered brokers. Wallet-to-wallet transfers, DeFi swaps, NFT marketplace transactions (on most platforms), and cross-chain bridges are not captured.
• If a taxpayer transfers assets from a centralized exchange to a private wallet and later sells on a DEX, the 1099-DA will show a "transfer out" but no proceeds — the taxpayer must track the full transaction independently.
• Cost basis from transactions before 2026 may not be reported on Form 1099-DA for assets that were "uncovered" — the taxpayer must maintain their own historical records.

Wash Sale Rule & Cryptocurrency

The wash sale rule under IRC §1091 disallows a loss on the sale of "stock or securities" when substantially identical stock or securities are repurchased within 30 days before or after the loss sale. Because the IRS classifies cryptocurrency as property — not securities, the wash sale rule does not currently apply to most crypto transactions.

Current Status — 2026

• As of 2026, selling Bitcoin at a loss and buying it back the same day does not trigger a wash sale disallowance. The full loss is deductible. This is explicitly confirmed in IRS Notice 2014-21 and maintained through all subsequent guidance, including the 2024 final broker reporting regulations.
• OBBBA did not extend §1091 to crypto. Multiple Congressional proposals since 2021 have sought to apply wash sale rules to digital assets — including provisions in the Build Back Better Act and several subsequent bills — but none have been enacted. The OBBBA, signed July 2025, does not contain any §1091 digital asset expansion.
• Exception — crypto ETFs: If a taxpayer holds crypto exposure through a security (e.g., a Bitcoin ETF that qualifies as a security), selling that security at a loss and buying a substantially identical security within 30 days could trigger the wash sale rule. The asset's classification — not the underlying exposure — determines whether §1091 applies.

DeFi, NFTs & Emerging Issues

DeFi (Decentralized Finance)

• Liquidity pool deposits: Contributing crypto to a liquidity pool may be a taxable event if the deposit is treated as an exchange of the contributed tokens for pool tokens — each representing different property. IRS has not issued definitive guidance on this issue; conservative treatment is to report any exchange of one token for another as a taxable event.
• Yield and interest from DeFi: Interest, yield, and reward tokens received from lending or liquidity mining protocols are taxable as ordinary income at FMV when received — consistent with staking reward treatment.
• DeFi is not covered by Form 1099-DA: Decentralized protocols have no reporting obligation under the current broker reporting regulations. All DeFi activity is self-reported by the taxpayer.

NFTs (Non-Fungible Tokens)

• Buying an NFT with crypto: Using cryptocurrency to purchase an NFT is a taxable event — you are disposing of crypto property and must calculate gain or loss on the crypto used.
• Selling an NFT: Gain on the sale of an NFT is generally a capital gain. However, if the NFT is a "collectible" (artwork, etc.), the long-term capital gains rate may be capped at 28% rather than the standard 0%/15%/20% rates.
• Creating and selling NFTs as a business: Artists and creators who mint and sell NFTs as a trade or business report income on Schedule C and may be subject to self-employment tax.
• Royalties from NFTs: Ongoing royalties received by the original creator when the NFT is resold on secondary markets are treated as ordinary income — consistent with other royalty treatment.

Crypto as Payment for Services

• Receiving cryptocurrency as compensation for services is ordinary income at the FMV on the date received. It must be reported as wages (W-2 if employee) or self-employment income (Schedule C if contractor) and is subject to applicable payroll or self-employment taxes.
• The FMV at receipt becomes the new cost basis; subsequent price changes are capital gains or losses when the crypto is sold.

Cost Basis Tracking

Accurate cost basis tracking is the foundation of correct crypto tax reporting. Unlike stocks held at a single brokerage, crypto may be held across dozens of exchanges and wallets — each requiring separate tracking.

Permitted Cost Basis Methods

Tracking Tools and Requirements

• Crypto tax software(Koinly, CoinTracker, TaxBit, etc.) aggregates transactions from exchanges and wallets via API or CSV import and calculates gains, losses, and income across all accounts. Essential for taxpayers with activity across multiple platforms.
• Wallet-to-wallet transfers must be recorded as non-taxable transfers — not as sales. If transfers are not properly tagged, the software may treat the outbound transfer as a sale and the inbound as a new purchase, incorrectly creating a taxable event and a higher cost basis.
• Records must be retained to support Form 8949 entries: acquisition date, acquisition cost, sale date, sale proceeds, and the cost basis calculation method used. IRS standard record retention (3 years from filing date) applies — though longer retention is recommended given the complexity of multi-year crypto portfolios.

Step-by-Step Guidance

Practical Examples

Common Mistakes

• 1 Assuming crypto-to-crypto trades are not taxable. Every swap of one cryptocurrency for another is a taxable disposition — gain or loss must be calculated using the FMV of the asset received and the cost basis of the asset surrendered. This is the most common and most costly error in crypto tax compliance.
• 2 Not tracking cost basis for each transaction lot. Each purchase of crypto establishes a separate lot with its own basis and acquisition date. Failure to maintain lot-level records prevents accurate gain/loss calculation and makes specific identification impossible.
• 3 Failing to report staking and mining income in the year received. Staking rewards and mining income are taxable when received — not when sold. Reporting only at the time of sale understates ordinary income and misstates the capital gain basis.
• 4 Treating wallet-to-wallet transfers as sales. Moving crypto between wallets or exchanges the taxpayer controls is not a taxable event. Recording these as sales creates phantom gains that are not owed. Crypto tax software must tag transfers correctly to avoid this error.
• 5 Ignoring airdrop income. Airdrops must be reported as ordinary income at FMV when received — even if the tokens are illiquid or the taxpayer did not request them. Omitting airdrop income is underreporting taxable income.
• 6 Assuming Form 1099-DA is a complete record. Form 1099-DA covers only transactions through centralized exchange brokers. DeFi activity, private wallet transactions, staking on non-custodial platforms, and airdrops are not reported on 1099-DA. The taxpayer is responsible for self-reporting all activity not captured by the form.
• 7 Not reconciling exchange records with wallet transaction logs. Cost basis from exchanges may not match wallet records — particularly when assets are moved between platforms. Unreconciled records create discrepancies between Form 1099-DA and Form 8949 that trigger IRS notices.
• 8 Answering "No" to the Form 1040 digital asset question when transactions occurred. The digital asset question must be answered truthfully. Checking "No" when the taxpayer bought, sold, traded, received, or transferred crypto — even in a tax-free transfer — is a misrepresentation to the IRS.

Hanmi CPA Insight