US Crypto Tax Guide 2025

The United States treats cryptocurrency as property for tax purposes under IRS Notice 2014-21. This means every transaction involving crypto—buying, selling, trading, spending, or receiving as income—is a taxable event that must be reported to the IRS. The IRS has significantly increased enforcement since 2019, requiring all filers to answer the digital asset question on Form 1040.

Form 8949 ("Sales and Other Dispositions of Capital Assets") is used to report each individual cryptocurrency transaction that resulted in a capital gain or loss. You must list each transaction separately with: date acquired, date sold, cost basis (what you paid), proceeds (what you received), and gain or loss. Taxxy automatically generates Form 8949 with all transactions properly categorized as short-term or long-term. Large traders may attach a summary statement instead of listing every transaction individually.

Schedule D summarizes your total capital gains and losses from Form 8949. Short-term gains (assets held less than 365 days) are taxed at ordinary income rates (10-37% depending on your tax bracket). Long-term gains (assets held over 365 days) receive preferential treatment with rates of 0%, 15%, or 20% based on your income. The holding period starts the day after acquisition and ends on the disposal date.

Your cryptocurrency gains and losses from Schedule D flow to Form 1040 Line 7 (capital gains). Crypto income (staking, mining, airdrops) is reported on Schedule 1 Line 8z as "Other Income" and appears on Form 1040 Line 8. Since 2019, Form 1040 includes a mandatory question about digital asset transactions that all filers must answer truthfully under penalty of perjury.

Taxxy uses FIFO (First In, First Out) as the cost basis method, which is IRS-compliant and the most commonly accepted method. FIFO assumes the first cryptocurrency you purchased is the first one sold. While the IRS technically allows other methods like LIFO, HIFO, or Specific Identification, you must use your chosen method consistently and track it meticulously. FIFO is recommended for simplicity and audit defense.

Staking rewards, mining income, airdrops, and interest are treated as ordinary income at fair market value (FMV) when you receive control of the tokens. This income is reported on Schedule 1 even if you haven't sold the tokens. The FMV on receipt day becomes your cost basis for future capital gains calculations. For miners, if mining is a business, you may also owe self-employment tax (15.3%) and can deduct mining expenses like electricity and equipment.

DeFi activities create complex tax situations. Token swaps (Uniswap, PancakeSwap) are taxable disposals—you're selling one asset for another. Liquidity provision creates a taxable event when you deposit tokens and when you withdraw (including any impermanent loss). Yield farming rewards are ordinary income when received. Wrapping tokens (ETH to WETH) is generally not taxable, but unwrapping triggers a disposal. Taxxy automatically categorizes these DeFi events using smart contract event parsing.

NFTs are treated as collectibles by the IRS, subject to a maximum long-term capital gains rate of 28% (higher than the 20% for regular crypto). Creating/minting an NFT isn't taxable, but selling it is. Receiving an NFT as a gift isn't taxable, but selling a gifted NFT uses the gifter's cost basis. Royalties from NFT resales are ordinary income reported on Schedule 1.

Unlike stocks, cryptocurrency is NOT subject to the wash sale rule (as of 2025), allowing you to sell at a loss and immediately rebuy the same asset to realize losses for tax purposes. This is a powerful strategy to offset gains. However, proposed legislation may eliminate this advantage in future tax years, so use it while available. Taxxy can help identify loss harvesting opportunities.

The IRS requires detailed records for each transaction: date and time, type of transaction, amount of cryptocurrency, value in USD at transaction time, wallet addresses, exchange names, and transaction hashes. Keep records for at least 3 years after filing (7 years recommended). Taxxy automatically maintains these records in IRS-compliant format with audit trail documentation.

Starting in 2025, cryptocurrency exchanges must issue Form 1099-DA ("Digital Asset Proceeds From Broker Transactions") to report your cryptocurrency sales, similar to stock brokerages. However, exchanges don't track your cost basis across platforms, so you're still responsible for calculating gains/losses accurately. Taxxy helps you reconcile 1099-DA forms with your actual multi-exchange transaction history.

Taxxy automatically generates IRS-compliant Form 8949, Schedule D, and Form 1040 integration. The platform imports from 55+ exchanges and 120+ blockchains, calculates FIFO cost basis with precise USD pricing using exchange OHLCV data, categorizes income vs. capital gains, handles DeFi and NFT transactions, identifies tax loss harvesting opportunities, and produces audit-ready PDF reports. Simply connect your wallets, review transactions, and download your completed tax forms.