How crypto and digital asset sales are taxed

Your convertible cryptocurrency is treated as property rather than currency for federal tax purposes. You apply the federal rules for property when transacting in convertible cryptocurrency. This property treatment is the starting point for understanding your federal tax obligations.

Your use of virtual currency also falls within an IRS compliance campaign. The campaign addresses noncompliance through approaches that include outreach and examinations. Those compliance activities follow the general tax principles applicable to property transactions described in IRS Notice 2014 21.

For your other cryptocurrencies and digital tokens, including NFTs, the approved analysis describes property treatment as likely. It also states that the IRS does not address the tax character of nonconvertible cryptocurrencies or NFTs. That qualification matters when you read the NFT transaction rules below.

If you create an NFT, creation should not be taxable to you because it does not represent a sale or exchange of property. The approved analysis distinguishes your creation of the NFT from your later sale or exchange of it.

If you sell or exchange the NFT you created, you have a taxable event when the property you receive differs materially from the NFT. You can receive fiat currency, cryptocurrency, a digital token, another NFT, or another type of property in the sale or exchange. The materially different property condition applies to this sale or exchange treatment.

You can also have a taxable transaction as the buyer of an NFT. Because NFTs are likely property, the approved analysis treats exchanges of one cryptocurrency or token for another as taxable barter transactions. When you pay for an NFT with cryptocurrency or a digital token, both you and the seller have taxable transactions.

If the fair market value of the cryptocurrency you use to buy the NFT exceeds your tax basis in that cryptocurrency, your gain is taxable. The relevant comparison for that gain is the value of the cryptocurrency you spend against your tax basis in it.

If your digital asset activity involves a taxable event, you remain responsible for accurately reporting the transaction on your income tax return. That responsibility applies even when the activity is not reported on a Form 1099. Whether you receive an information form does not determine this reporting obligation.

Your responsibility includes taxable transactions that do not involve a broker. It also includes transactions you perform on a blockchain using a noncustodial wallet. These activities remain within the reporting rule even though you may not receive a Form 1099 for them.

For certain customer sales or exchanges, Treasury and IRS final regulations require brokers to report digital asset dispositions on Form 1099 DA. The reporting requirement begins with transactions occurring on or after January 1, 2025. This broker requirement covers certain transactions rather than every form of digital asset activity you might undertake.

The final regulations delay broker cost basis reporting to sales occurring on or after January 1, 2026. Your broker's reporting of a digital asset disposition and its reporting of cost basis therefore have different starting dates under the approved facts.

The cost basis reporting requirement has acquisition and custody limits. Your broker must report basis only for digital assets acquired after cost basis reporting takes effect. Reporting is also limited to assets you acquire, hold until sale, and sell within the same custodial broker.

If you transfer digital assets between brokers, the approved guidance states that there will be no cost basis reporting for those transferred assets. You need to track that information in your own records. The same broker custody condition limits the basis information available through broker reporting.

For your digital asset sales, the final regulations remove brokers' obligation to report transaction IDs or hashes and digital asset address information. That information may still be requested during a tax audit. Removing it from routine reporting does not remove the broker's separate record retention requirement.

Your broker must collect and retain those transaction and address records for seven years from the due date for filing the related information return. The seven year period runs from that filing due date under the approved guidance.

You may hold multiple units of the same digital asset in one wallet that you acquired on different dates or at different prices. The final regulations provide ordering rules to determine which of those units you treat as sold, disposed of, or transferred.

Those rules address identification of the units involved in your transaction. They generally apply separate rules depending on whether you hold the units in a broker's custody. Your custody arrangement therefore matters to which ordering rules apply when you hold differently acquired units in the same wallet.

If your transaction is long term and you cannot check box D, E, J, or K because you did not receive Form 1099 B, Form 1099 DA, or a substitute statement, you report it in Part II of Form 8949 under the applicable instructions.

For your digital asset transactions in that category, you use box L. You do not use box F for digital asset transactions. Although the instructions discuss box F and box L together for transactions without the specified statements, they expressly direct digital asset transactions to box L.

If a cryptocurrency you own undergoes a hard fork and you receive no units of a new cryptocurrency, you do not have gross income as a result of the hard fork. The ruling's no income result depends on your receiving no new cryptocurrency units.

If you receive new cryptocurrency through an airdrop following a hard fork, you have ordinary gross income in the taxable year you obtain dominion and control of the units, as in the ruling's example where you immediately can dispose of them. This rule addresses your receipt of the new asset through that airdrop.

In the ruling's receipt example, you have dominion and control when the airdrop is recorded on the distributed ledger because you immediately have the ability to dispose of the new cryptocurrency. The immediate ability to dispose of the units is part of the stated facts supporting receipt at that time.

Under those facts, you include the fair market value of the received cryptocurrency in gross income. Your basis in the new cryptocurrency equals the amount of income you recognize. Both the income amount and the resulting basis follow from the value recognized when you receive the units.