How Is Bitcoin Taxed in the US? What the IRS Actually Says

The IRS treats Bitcoin as property, not currency. When you sell, exchange or spend Bitcoin, you have a capital gain or loss equal to the difference between what you receive and your basis. Bitcoin you receive from mining or as payment is income at its fair market value in US dollars on the date you receive it.

Buying Bitcoin with dollars, holding it and moving it between wallets you control do not, by themselves, require a “Yes” answer to the digital asset question on Form 1040. The rules below come from IRS notices, revenue rulings and irs.gov guidance, as of October 28, 2026.

Property. The IRS set this rule in Notice 2014-21. Its answer to Q-1 states: “For federal tax purposes, virtual currency is treated as property.” The notice adds that general tax principles applicable to property transactions apply to transactions using virtual currency.

The notice also rules out foreign currency treatment. In its answer to Q-2, it states that virtual currency “is not treated as currency that could generate foreign currency gain or loss.”

The IRS still uses this framework today. Its digital assets page, last updated September 2, 2026, states that “digital assets are considered property, not currency.” The same page defines a digital asset as “any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology.” Bitcoin fits that definition.

The ones that dispose of Bitcoin or bring new Bitcoin to you. The IRS digital assets page lists transactions that require a “Yes” answer to the digital asset question, including:

Buying alone does not create a gain or loss, because you have not disposed of anything. The IRS FAQ says that if your only transactions involving virtual currency were purchases with real currency, you do not need to answer “yes” to the Form 1040 question.

The digital assets page gives the same answer for owning or holding digital assets without transacting, and for buying them with real currency.

No. Q38 of the IRS FAQ states that “the transfer is a non-taxable event,” even if an exchange or platform sends you an information return about it.

There is one detail to watch. The digital assets page lists paying a transfer fee in digital assets as a transaction that requires a “Yes” answer. A withdrawal to your own wallet with a network fee paid in Bitcoin is therefore not entirely invisible on your return.

Yes. Under Q14 of the IRS FAQ, if you pay for a service “using virtual currency that you hold as a capital asset,” you have exchanged a capital asset and have a capital gain or loss. Q15 states that the gain or loss is the difference between the fair market value of what you received and your adjusted basis in the virtual currency.

In practice, buying a coffee with Bitcoin is a sale of that Bitcoin for tax purposes.

By subtracting your basis from what you receive. Q8 of the IRS FAQ states: “Your basis (also known as your ‘cost basis’) is the amount you spent to acquire the virtual currency,” including fees, commissions and other acquisition costs, in US dollars.

For Bitcoin you receive as payment rather than buy, Notice 2014-21 sets the basis at “the fair market value of the virtual currency in U.S. dollars as of the date of receipt.”

The holding period. Q6 of the IRS FAQ states: “If you held the virtual currency for more than one year before selling or exchanging it,” the gain or loss is long-term. If you held it one year or less, it is short-term.

The general capital gains rates apply. According to IRS Topic 409, “the tax rate on most net capital gain is no higher than 15% for most individuals.” Rates of 0% and 20% also apply, depending on taxable income.

Notice 2014-21 states that a taxpayer “generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset.” Bitcoin held mainly for sale to customers in a trade or business generally produces ordinary gain or loss instead.

Yes, as capital losses. IRS Topic 409 limits the annual deduction of net capital losses to “the lesser of $3,000 ($1,500 if married filing separately)” or your total net loss. Losses above that limit carry forward to later years.

You can choose, if you can prove it. Q39 of the IRS FAQ allows you to select specific units if you “can specifically identify which unit or units of virtual currency are involved” and substantiate their basis.

If you do not, Q41 sets the default: “the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order.” This is first in, first out, often called FIFO.

Basis is now tracked wallet by wallet. Rev. Proc. 2024-28 states that “Section 1.1012-1(h) and (j) of the 2024 final regulations will apply to all acquisitions and dispositions of digital assets on or after January 1, 2025.” It explains that Section 1.1012-1(j) applies “the specific identification or FIFO rules to units held within a single wallet or account.”

To move from the old approach to the new one, the revenue procedure “provides a safe harbor under § 1012(c)(1) of the Internal Revenue Code.” It lets taxpayers “allocate unused basis of digital assets to digital assets held within each wallet or account” as of January 1, 2025.

For a specific unit allocation, the deadline is the earlier of two dates: your first sale, disposition or transfer of the same type of digital asset on or after January 1, 2025, or the due date, including extensions, of your 2025 return. You must keep records of the remaining units in each wallet or account and of their original cost and acquisition dates.

As income when you receive the Bitcoin. Under Q-8 of Notice 2014-21, successfully mined virtual currency is taxable upon receipt: “The fair market value of the virtual currency as of the date of receipt is includible in gross income.”

Mining can also trigger self-employment tax. Under Q-9, if mining is a trade or business and you are not doing it as an employee, the net earnings “constitute self-employment income and are subject to the self-employment tax.”

The digital assets page points to Schedule 1 (Form 1040) for other ordinary income such as mining, and to Schedule C for payments received as an independent contractor.

It depends on whether you receive new units. Rev. Rul. 2019-24 defines a hard fork as what “occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger.”

It sets two holdings:

Receiving a gift is not income at that moment. Q31 of the IRS FAQ states: “If you receive virtual currency as a bona fide gift, you will not recognize income until you sell” or otherwise dispose of it.

Giving to charity is not a sale. Under Q34, if you donate virtual currency to a qualifying charity, “you will not recognize income, gain, or loss from the donation.” Q35 explains that your deduction is generally the fair market value if you held the virtual currency for more than one year.

Gifts you make in digital assets are reported on Form 709, according to the IRS digital assets page.

It is a Yes or No question on Form 1040 and other federal returns. The IRS digital assets page states: “On federal income tax returns, you must answer ‘Yes’ or ‘No’ to a question about digital assets.”

The question begins “At any time during the tax year, did you:” and covers two cases:

The same question appears on Forms 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120-S. The page also states that you “must report them whether or not they result in a taxable gain or loss.”

According to the IRS digital assets page:

Yes, if it is a broker. The digital assets page states that broker reporting “is required to be made on Form 1099-DA beginning with transactions on or after Jan. 1, 2025.” Brokers report gross proceeds for transactions from January 1, 2025, and basis for certain transactions from January 1, 2026.

Enough to support every number on your return. Q46 of the IRS FAQ states that the law requires taxpayers “to maintain records that are sufficient to establish the positions taken on tax returns.” The FAQ’s examples include records of receipts, sales, exchanges and the fair market value of the virtual currency.

From the sources above, a simple record for each unit of Bitcoin includes:

No. Notice 2014-21 states that “For federal tax purposes, virtual currency is treated as property,” and that it is not treated as currency that could generate foreign currency gain or loss. The IRS digital assets page confirms that digital assets are property, not currency.

No gain or loss arises from buying and holding alone. According to the IRS digital assets page, owning digital assets without transacting and buying them with real currency do not require a “Yes” answer. Tax applies when you sell, exchange or spend Bitcoin.

No. The IRS FAQ calls a transfer between your own wallets “a non-taxable event.” However, the IRS digital assets page lists paying a transfer fee in digital assets as a transaction requiring a “Yes” answer on the Form 1040 digital asset question.

More than one year. Under Q6 of the IRS FAQ, Bitcoin held for more than one year before you sell or exchange it produces a long-term gain or loss. Bitcoin held for one year or less produces a short-term gain or loss.

Yes, when you receive it. Under Notice 2014-21, the fair market value of mined virtual currency on the date of receipt is included in gross income. If mining is a trade or business and you are not an employee, the net earnings are also subject to self-employment tax.

Yes. Under Q14 and Q15 of the IRS FAQ, paying for goods or services with Bitcoin you hold as a capital asset produces a capital gain or loss. It equals the fair market value of what you received minus your adjusted basis in the Bitcoin you spent.

From January 1, 2025, the specific identification and FIFO rules apply to units held within each wallet or account, according to Rev. Proc. 2024-28. The revenue procedure provides a safe harbor to allocate unused basis to the Bitcoin held in each wallet or account as of that date.

This article is general information and not legal advice.

Tax rules for Bitcoin differ widely from one country to the next. Compare more than 140 countries on The Bitcoin Act’s interactive Global Bitcoin Regulatory Map: https://thebitcoinact.xyz/bitcoin-legal-map

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