Crypto Tax Basics in the United States

The starting point: property treatment

The IRS states that virtual currency is treated as property for federal income tax purposes, and that general property-transaction principles apply. That single classification is why the terminology below comes from capital-gains language rather than from currency rules.

Key terms

• Taxable event — a transaction that may create a reportable gain, loss or income. The IRS materials describe events such as selling, exchanging one digital asset for another, and using digital assets to pay for goods or services.
• Cost basis — generally what you paid to acquire an asset, including certain costs of acquisition. It is the figure a gain or loss is measured against.
• Proceeds — what you received in the disposal, measured in US dollars at the time of the transaction.
• Capital gain or loss — the difference between proceeds and cost basis.
• Holding period — how long the asset was held before disposal. US tax law distinguishes short-term from long-term, and the distinction affects treatment.
• Fair market value — the US dollar value of the asset at the moment of the transaction, which is what the IRS instructs taxpayers to use when a transaction is not denominated in dollars.
• Income from digital assets — the IRS describes situations where digital assets received, for example as payment for services, are included in income at fair market value.

Moving your own crypto between wallets you control is generally not a disposal — but it still matters for records, because it affects which basis belongs to which units later.

Why record keeping is the practical part

1. Export a full transaction history from every exchange and service you use, while your account is still open.
2. Keep the date, asset, quantity, US dollar value, fees, counterparty or platform, and the transaction hash for on-chain activity.
3. Record transfers between your own wallets too, so later disposals can be matched to the right acquisition.
4. Store exports at least annually, since platforms change formats, restrict history or shut down.
5. Keep the records for as long as the IRS's retention guidance requires for supporting documents.

Where people get caught out

• Assuming that only converting to dollars is reportable. IRS materials describe exchanges of one digital asset for another as transactions to consider as well.
• Losing the acquisition history when a platform closes, which makes basis hard to substantiate.
• Overlooking fees, which factor into basis and proceeds.
• Ignoring the digital asset question that appears on federal income tax return forms.
• Relying on a software estimate without reconciling it to the underlying records.

What this page will not do

We do not state tax rates, thresholds, form numbers or filing outcomes, and we do not tell you how any specific transaction should be reported. Those depend on current law and your circumstances. Read the IRS pages below, note their dates, and consult a licensed professional for your own situation.

Sources

• IRS — Digital assets
• IRS — Frequently asked questions on virtual currency transactions
• IRS Notice 2014-21 (property treatment)
• IRS — Recordkeeping