Module 14: Taxation and Regulation (US and EU Edition)

United States: How Crypto Is Taxed

Chapter 4 of 12 · about 5 minutes

4.1 Property, not currency

In the United States, the tax authority, the Internal Revenue Service (IRS), treats crypto and other digital assets as property for federal tax purposes, not as currency. This has been the position since IRS guidance in 2014.

"Property?" said Mint. "Like a house?"

"In tax terms, closer to a stock," said Hash. "Every time you dispose of it, you compare what you received with what you paid, and you have a capital gain or loss. That includes selling, swapping, and spending."

This chapter covers the basics for US taxpayers as of October 2026. It's educational, not tax advice. US taxes are complex and change; consult a qualified tax professional for your situation.

4.2 Who this applies to

US federal tax rules apply to US citizens, US tax residents, including green card holders and many long-term residents, and certain others. Notably, US citizens are generally taxed on worldwide income even if they live abroad (Chapter 11). Using a foreign exchange doesn't change this.

4.3 Taxable and non-taxable events

EventFederal treatment (general)
Buying crypto with US dollarsNot taxable; establishes cost basis
Selling crypto for dollarsCapital gain or loss
Swapping one crypto for anotherCapital gain or loss on the crypto disposed of
Spending crypto on goods or servicesCapital gain or loss
Moving crypto between your own walletsNot taxable
Receiving staking or mining rewardsOrdinary income when you gain control of them (Chapter 5)
Being paid in crypto for workOrdinary income; possibly self-employment tax
Receiving airdropsGenerally ordinary income when received and controlled (Chapter 5)
Gifting cryptoGenerally not taxable to the giver below gift tax thresholds; the recipient generally inherits the giver's basis (Chapter 5)

4.4 Short-term and long-term capital gains

The holding period determines the rate:

Holding periodClassificationFederal tax rates (general)
One year or lessShort-termTaxed as ordinary income, at rates from 10% to 37% depending on total income
More than one yearLong-termLower rates of 0%, 15%, or 20%, depending on total income

Higher-income taxpayers may also owe an additional 3.8% net investment income tax on investment gains. Most states also tax capital gains, at rates that vary widely; some have no income tax at all.

Example. Mint makes a $10,000 gain on bitcoin. Assume Mint's other income places Mint in the 24% ordinary bracket and the 15% long-term capital gains bracket, ignoring state taxes and the 3.8% tax.

Held forFederal tax (illustrative)
11 months (short-term)$10,000 × 24% = $2,400
13 months (long-term)$10,000 × 15% = $1,500

Waiting just over one year saved $900 in this example.

"So the holding period is worth tracking carefully," said Mint.

"For each lot separately," said Hash. "Your bitcoin bought in January and your bitcoin bought in June reach the one-year mark at different times."

4.5 Cost basis methods in the US

US taxpayers can generally use:

MethodHow it works
FIFO (first in, first out)The default if you don't specifically identify which units you sold
Specific identificationChoose which units you sold, if you can adequately identify them at the time of sale, for example through exchange records or your own documentation

Strategies like choosing the highest-cost lots to reduce gains (sometimes called HIFO) are a form of specific identification, and require proper records.

4.6 Wallet-by-wallet tracking

Since 1 January 2025, US taxpayers must track cost basis wallet by wallet, or account by account, rather than pooling all holdings across every wallet and exchange into one universal pool. The IRS allowed a transition, letting taxpayers allocate their existing basis across wallets as of the start of 2025.

What this means in practice: if you hold BTC in a hardware wallet and on two exchanges, each location has its own set of lots. When you sell on one exchange, you generally use the lots held in that account, not lots sitting in your hardware wallet.

Before 2025 (common approach)From 2025
All BTC treated as one pool across all locationsEach wallet or account tracked separately
Sale on any platform could use any lotSale uses lots in that specific wallet or account

This makes the transfer records from Chapter 3 even more important: when you move crypto between your own wallets, the lots and their basis move with it.

4.7 Income from crypto

Crypto received as income is taxed at ordinary income rates, based on its fair market value in dollars when received. That value becomes your cost basis for any later sale.

Example. Node receives staking rewards worth $1,000 when received. Later, Node sells them for $1,300.

EventTax treatment
Rewards received$1,000 ordinary income
Later sale$300 capital gain, short- or long-term depending on how long Node held the rewards

4.8 Try it yourself

Using your own records, or a hypothetical set, classify each disposal from the past year as short-term or long-term. Calculate the total of each. Then check whether your records allow specific identification and whether your holdings are tracked wallet by wallet.

Key takeaways from this chapter

  1. The IRS treats crypto as property: selling, swapping, and spending trigger capital gains or losses.
  2. US citizens are generally taxed on worldwide income, regardless of where they live or which exchange they use.
  3. Gains on crypto held one year or less are taxed at ordinary income rates; more than one year qualifies for lower long-term rates.
  4. Higher earners may owe an extra 3.8% on investment income, and many states tax gains too.
  5. FIFO is the default; specific identification is allowed with adequate records.
  6. Since 2025, cost basis must be tracked wallet by wallet or account by account.
  7. Crypto income is taxed at ordinary rates when received, and its value becomes the cost basis.