How Cryptocurrency Is Taxed in 2026

The Foundational Rule: Crypto Is Property, Not Currency

The IRS has treated virtual currency as property, not currency, since Notice 2014-21 — a classification that drives every other rule in this guide. Because it's property, selling crypto for cash, spending it on goods or services, or trading it for a *different* cryptocurrency are all taxable "dispositions" that trigger a capital gain or loss, exactly like selling a stock. Simply buying crypto with cash and holding it, or transferring it between your own wallets, is not a taxable event.

The most commonly missed rule here: trading one cryptocurrency for another is taxable, even though no U.S. dollars changed hands. Swapping Bitcoin for Ethereum is treated the same as selling the Bitcoin for cash and immediately buying Ethereum with it — you must recognize a capital gain or loss on the Bitcoin at the moment of the trade, based on its fair market value then, whether or not you ever touched a bank account.

Selling or Trading: Short-Term vs. Long-Term Capital Gains

If you held the crypto for one year or less before disposing of it, any gain is short-term and taxed at your ordinary federal marginal rate (up to 37% in 2026), stacked on top of your other income. Held for more than one year, the gain is long-term and taxed at the preferential 0%/15%/20% rates instead, following the same Qualified Dividends and Capital Gain Tax Worksheet mechanics the IRS uses for stock sales.

On top of federal capital gains tax, the 3.8% Net Investment Income Tax (IRC §1411) can apply to the lesser of your net investment income or the amount your modified adjusted gross income exceeds a threshold — $200,000 (single/head of household), $250,000 (married filing jointly), or $125,000 (married filing separately); none of these thresholds are inflation-indexed, so more taxpayers become subject to it every year as incomes rise. Your cost basis is generally what you paid to acquire the crypto (including fees); if you received it as income instead (mining, staking, or payment for services), your basis is the fair market value on the date you received it. Run your specific numbers through the Crypto Tax Calculator.

Mining and Staking Rewards: Ordinary Income, Even If You Never Sell

Cryptocurrency received from mining or staking is taxed the same way the IRS treats crypto received as payment for services (FAQ Q9, Q10, Q12, Q22-Q25): you recognize ordinary income equal to the fair market value of the coins on the date you receive them — regardless of whether you sell, trade, or continue holding them. That same fair-market-value figure also becomes your cost basis for a later, separate capital-gains calculation when you eventually dispose of the coins.

If you mine or stake as a genuine trade or business — regular, business-like activity intended to make a profit, rather than occasional hobby-level activity — the income is also subject to self-employment tax (12.4% Social Security up to the wage base, plus 2.9% Medicare, plus the Additional Medicare Tax above the filing-status threshold), and you can deduct ordinary business expenses like equipment and electricity. Hobby-level mining or staking is still taxable ordinary income, but has no self-employment tax and no expense deduction against it. Estimate your specific tax bill with the Crypto Mining & Staking Tax Calculator.

The Wash-Sale Loophole (and Why It May Not Last)

Under current law, the wash-sale rule (IRC §1091) — which disallows a loss deduction when you sell "stock or securities" at a loss and buy substantially identical stock or securities within 30 days before or after — does not apply to cryptocurrency. Because the IRS classifies virtual currency as property rather than a security, crypto investors can currently sell a losing position to realize a tax loss and immediately repurchase the same coin, a strategy that would be disallowed for stocks.

This is a well-known and widely reported distinction, and Congress has repeatedly proposed closing it by extending the wash-sale rule to digital assets — meaning it's a planning opportunity that comes with real legislative risk. Anyone relying on this strategy for a given tax year should confirm the rule hasn't changed before filing.

What This Guide Doesn't Cover

A capital loss on crypto isn't unlimited in how it offsets income in a given year — IRC §1211(b) generally limits the amount of net capital losses that can offset ordinary income to $3,000 per year ($1,500 married filing separately), with the excess carried forward to future years; the single-sale calculators linked above don't model this multi-year carryforward, since it depends on your complete tax return. Broker reporting requirements for digital assets have also been evolving — the IRS's digital-assets guidance (irs.gov/filing/digital-assets) is the authoritative, regularly updated source for current-year reporting obligations, and is worth checking directly if you're unsure what your exchange will report to the IRS for a given tax year.