A clear understanding of cryptocurrency taxes is crucial in 2025 as the rise of digital assets continues to reshape how individuals and businesses handle their finances. The Internal Revenue Service (IRS) treats cryptocurrency as property, not currency, meaning capital gains and income tax rules apply when you trade, sell, or earn crypto. Staying compliant with tax laws will help you avoid penalties and maximize your financial strategies.
How Cryptocurrency Is Taxed
The IRS distinguishes between different types of cryptocurrency transactions when determining its taxation. Different tax rules apply depending on how you acquire or use cryptocurrency.
- Capital Gains: When you sell, trade, or use cryptocurrency that has increased in value, the difference between your purchase price (cost basis) and the sale price is subject to capital gains tax.
- Ordinary Income: Crypto earned through activities like mining, staking, or receiving payments for goods or services is taxed as ordinary income based on its fair market value at the time of receipt.
What Is the Crypto Tax Rate for 2025?
Tax rates depend on how long you hold the digital asset and your income level. Gains are categorized as:
- Short-Term Capital Gains: For crypto held for one year or less, your gain is taxed at your ordinary income tax rate, ranging from 10% to 37%.
- Long-Term Capital Gains: For crypto held longer than a year, tax rates are 0%, 15%, or 20%, depending on your income.
Long-Term Capital Gains Brackets for 2025
Filing Status | 0% Rate | 15% Rate | 20% Rate |
Single | Up to $48,350 | $48,351 to $533,400 | Over $533,400 |
Married Filing Jointly | Up to $96,700 | $96,701 to $600,050 | Over $600,050 |
Head of Household | Up to $64,750 | $64,751 to $566,700 | Over $566,700 |
Cost Basis and Capital Gains Calculations
To find your capital gain or loss:
- Start with the purchase price and add any fees to calculate your adjusted cost basis.
- Then take the sale amount (proceeds) and subtract any fees.
- Subtract your adjusted cost basis from your adjusted proceeds.
- A positive outcome is a capital gain, while a negative outcome is a capital loss.
Example:
You buy Ethereum for $5,000 with a $5 gas fee. Later, you sell it for $7,500 with an $8 gas fee.
- Adjusted cost basis: $5,000 + $5 = $5,005
- Adjusted proceeds: $7,500 – $8 = $7,492
- Capital gain: $7,492 – $5,005 = $2,487
Cost Basis Tracking Methods
The following are some common cost basis tracking methods. Consulting with an expert crypto CPA will help you determine which method best suits your investment strategy and tax-saving goals.
- FIFO (First In, First Out): The first cryptocurrency you purchase is the first sold when calculating gains or losses. This method was previously the default for all unidentified assets.
- LIFO (Last In, First Out): The most recent cryptocurrency you acquire is the first disposed of. LIFO can help reduce taxes in periods of rising prices.
- HIFO (Highest In, First Out): Prioritizes selling the highest-cost cryptocurrency first, minimizing taxable gains.
What’s New for 2025?
Starting in 2025, new IRS rules require tracking the cost basis for each wallet or account. This replaces the old universal FIFO (first-in, first-out) method for unidentified digital assets.
Taxpayers must now apply a cost basis separately per wallet. You must have selected your preferred cost basis method before January 1, 2025.
Key Cryptocurrency Taxable Events
These are some key examples of events for which you will owe taxes to the tax authorities.
Selling Cryptocurrency for Cash
Selling your cryptocurrency for fiat currency triggers a taxable event. The difference is considered a capital gain if the sale price exceeds your cost basis.
Converting Cryptocurrency to Another Cryptocurrency
Exchanging one cryptocurrency for another is treated as a sale, requiring you to report any gain or loss.
Example
If you swap Bitcoin purchased for $800 for $2,000 worth of Solana, you must report a $1,200 capital gain. This gain is the difference between your original Bitcoin cost basis of $800 and its $2,000 value at the time of the trade.
The new cost basis for Solana becomes its fair market value of $2,000. This is used to calculate future gains or losses when you sell or trade the Solana later.
Reinvesting Your Cryptocurrency
Reinvesting cryptocurrency, like using profits to buy another crypto or stake tokens, triggers a taxable event. Any gain or loss must be reported based on the difference between your cost basis and the digital asset’s fair market value at the time of the transaction.
Using Cryptocurrency for Purchases
Purchasing goods or services with cryptocurrency is considered a sale.
Example
If in 2023 you bought 2 Bitcoin (BTC) for $40,000 each and used them to buy a yacht worth $200,000 in 2025, the tax implications are as follows:
- You must report a capital gain of $120,000, calculated as the difference between the $80,000 cost basis and the $200,000 value at the time of the transaction. You will pay taxes in the form of long-term capital gains tax on this gain based on your tax bracket.
- You will also owe sales and local taxes on the yacht purchase.
- The seller must report the transaction as gross income based on the BTC’s fair market value. If they later cash out or spend the Bitcoin, they will realize a capital gain or loss.
Making a Purchase With Mined Cryptocurrency
Using mined cryptocurrency for purchases carries multiple tax implications. Here’s how it works if you buy a pair of shoes with mined crypto:
- Income Tax: The market value of the mined crypto on the day you received it is reported as ordinary income and you will pay income tax.
- Sales Tax: You pay sales tax on the purchase amount of the shoes, transferring crypto from your wallet to the merchant’s.
- Capital Gains or Losses: If the crypto’s value increased since you mined it, you will owe capital gains tax. If it decreased, you report a capital loss.
In total, using mined crypto could trigger three types of taxes: income tax, sales tax, and capital gains tax.
Accepting Cryptocurrency Payments for Goods and Services
Cryptocurrency is treated as taxable income when you accept it as payment for goods or services. The income is reported based on the fair market value of the cryptocurrency at the time of the transaction. Like cash or credit payments, this amount must be included in your gross income for tax purposes.
Receiving Cryptocurrency From Mining
Mining involves verifying blockchain transactions and earning cryptocurrency rewards. The fair market value of the rewards is taxable as ordinary income. If mining is part of a business, you can report it as business income on Schedule C and deduct expenses such as hardware and electricity.
Earning Cryptocurrency From Staking
Staking locks your cryptocurrency as collateral to validate transactions and earn rewards. These rewards are taxable as income when received. Additionally, any gains or losses must be reported if you use or convert the staked cryptocurrency.
Getting Cryptocurrency Airdrops
An airdrop distributes free cryptocurrency to holders. It is taxed as ordinary income based on its fair market value when received. Any future sale or trade must reflect capital gains or losses.
Receiving Cryptocurrency From Hard Forks
A hard fork splits a blockchain, creating a new cryptocurrency. New crypto from a hard fork is taxed as income at its fair market value when you take control of it. Selling or exchanging it later requires reporting capital gains or losses.
Cryptocurrency Non-Taxable Events
These crypto activities do not trigger a tax liability.
Buying and Holding Cryptocurrency
Purchasing cryptocurrency with fiat currency and holding it does not create a taxable event until you sell.
Transferring Cryptocurrency Between Wallets
Moving cryptocurrency between wallets you control is non-taxable. Ensure you maintain records of original purchase dates and cost basis.
Receiving Cryptocurrency as a Gift
Gifts of cryptocurrency are generally tax-free for the recipient. The giver may need to file a gift tax return if the value exceeds annual limits.
Giving Cryptocurrency as a Gift
Cryptocurrency gifts are typically tax-free for most individuals. However, gifts exceeding $19,000 to one individual in a tax year require filing a gift tax return, though this does not necessarily mean taxes are owed.
Using Cryptocurrency as Collateral for a Loan
Using cryptocurrency as collateral for a loan doesn’t trigger a taxable event. However, gains or losses must be reported when the loan is repaid. If the collateral is seized due to default, a taxable event may occur.
Donating Your Cryptocurrency
Donating cryptocurrency to a qualified charity is generally a nontaxable event. The fair market value of donated crypto is tax deductible on your tax return. Contributions over $500 must be reported on Form 8283.
Cryptocurrency Soft Fork
A soft fork occurs when a cryptocurrency undergoes an upgrade or structural change without creating a new token. This type of event is not taxable because no additional coins are received. Like a stock split or a ticker symbol change, your original cost basis carries over to the updated token.
The Importance of Record-Keeping
Taxpayers are required to keep records that support the positions reported on their tax returns. This includes maintaining documentation of receipts, sales, exchanges, or other transactions involving virtual currency, as well as the fair market value of the currency at the time.
Details to track include:
- Dates of purchases and sales
- Purchase and sale prices
- Transaction fees
Reporting Requirements for Crypto Transactions
To ensure accurate reporting of crypto transactions, the IRS requires the use of specific forms based on the type of transaction or income received.
IRS Tax Forms for 2025
- Form 1099-DA: Starting in 2025, crypto exchanges must issue this form for reporting digital asset transactions.
- Form 1099-B: Reports proceeds from crypto transactions made through brokerages or crypto exchanges.
- Form 1099-MISC: Issued when you receive miscellaneous income from crypto, such as awards or other payments not tied to employment.
- Form 1099-NEC: Used to report crypto compensation for non-employee work, including payments from mining or other activities.
- Form 8949 (Sales and Dispositions of Capital Assets): Lists individual crypto sales and trades.
- Schedule 1: Reports crypto income from staking, airdrops, forks, or hobby-related activities.
- Schedule D: Summarizes overall capital gains and losses.
- Schedule C: Used for self-employment income from mining, operating a node, or staking as a business. Self-employment tax applies to this income.
When any 1099 form is issued, a copy also goes to the IRS. The agency matches it to your tax return to ensure accurate reporting. Starting in 2025, stricter rules will make it easier for both taxpayers and the IRS to track crypto-related income and transactions.
Digital Asset Question on IRS Forms
The IRS requires taxpayers to answer “Yes” or “No” to this digital asset question on certain IRS tax filing forms: “At any time during 2024, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
You would answer “No” if your crypto activity fell under the non-taxable crypto events as described earlier.
You must answer “Yes” if you engaged in any digital asset activity classified as a taxable event. You must report these on your tax return—even if no profits or losses occurred.
Transactions like mining, staking, and trades must be disclosed regardless of whether they resulted in gains. Proper reporting is mandatory to avoid penalties.
Consequences of Failing to Report Crypto Taxes
The IRS has increased enforcement of crypto tax compliance. Starting in 2025, enhanced reporting requirements and new forms like 1099-DA will improve IRS oversight. Penalties for failing to report include:
- Criminal prosecution for tax evasion
- Fines up to $250,000
- Up to five years in prison
Stay Compliant With Crypto Tax Professionals
Crypto exchanges like Coinbase and Binance cannot provide accurate tax reports because they lack key details about your transactions. Exchanges lose track of your original cost basis—which is a crucial factor for calculating capital gains or losses—when you transfer crypto between wallets or platforms. This makes it nearly impossible for them to offer precise tax records.
Example
If you buy crypto on one exchange, move it to a cold wallet, and later sell it on another, the second exchange won’t know your initial purchase price. As a result, your tax reporting becomes incomplete or incorrect without proper records.
Tracking crypto taxes becomes even more complicated when you use digital currency to buy goods or services. Every purchase involving crypto counts as a taxable event, requiring detailed records of the transaction date, fair market value, and original cost basis. Managing these details can quickly turn into a tedious and error-prone process without the proper tools and expertise.
Crypto tax software helps automate tracking, but effective implementation requires specialized knowledge. At Alpine Mar, we provide an accounting software implementation service and portfolio tracking solutions, making it easier to stay compliant. With our professional support, you save time, avoid errors, and reduce the risk of costly tax problems.
Strategies to Reduce Your Crypto Tax Liability in 2025
Minimize your crypto tax liability with these strategic actions:
- Hold Long-Term: Benefit from lower long-term capital gains rates.
- Tax-Loss Harvesting: Cryptocurrency capital losses can offset an unlimited amount of capital gains and up to $3,000 of ordinary income.
- Use Tax-Advantaged Accounts: Consider crypto IRAs for deferred taxes.
- Charitable Contributions of Crypto: Claim deductions based on fair market value without incurring capital gains.
Simplify Crypto Taxes With an Expert Crypto CPA
Navigating cryptocurrency tax laws can be challenging, but strategic planning and accurate records help reduce your tax burden. Using reliable crypto tax tools and tracking every transaction ensures better compliance.
Furthermore, staying updated on IRS rules and tax changes is crucial as regulations evolve. Working with an experienced crypto CPA gives you personalized advice and peace of mind in your crypto endeavors.