How is cryptocurrency taxed in 2025?

The IRS treats cryptocurrency as property, not currency. When you sell, trade, or use crypto to buy goods, you trigger a taxable event. Long-term gains (held over 1 year) are taxed at 0%, 15%, or 20%. Short-term gains are taxed as ordinary income at rates up to 37%.

  • IRS Notice 2014-21 classifies cryptocurrency as property for tax purposes
  • Wash sale rules do NOT apply to crypto under current law; H.R. 10357 (committee-approved) would apply them to sales after Sept 14, 2026
  • Cost basis methods: FIFO (First In First Out), LIFO, or Specific ID
  • NIIT adds 3.8% on crypto gains if MAGI exceeds $200K (single) / $250K (MFJ)

Source:IRS Notice 2014-21

Crypto tax surprises people because exchanges don't issue clean 1099s — yet. Every swap, every NFT mint, every staking reward is a separate taxable event. The IRS pulled in over 600,000 John Doe summons records in 2024; assume your wallet activity is visible.

Real-world scenario

Trader did 400 swaps in 2024, never sold to USD

A DeFi user swapped ETH→USDC→various tokens 400+ times across Uniswap and 1inch. He never 'cashed out' so he assumed nothing was owed. Reality: every swap is a disposal. After basis tracking with Koinly, total realized gains came to $42,000 short-term — taxed at his 24% marginal rate plus 3.8% NIIT. Owed: ~$11,700, plus an underpayment penalty.

The part most people miss

Crypto is not subject to the wash-sale rule under current law, but H.R. 10357 (approved by Ways and Means 38-5 on Sept 16, 2026) would apply it to crypto sales after September 14, 2026 if enacted as approved. A sell-and-rebuy harvest this fall could be disallowed retroactively. To limit the risk, wait 31 days before buying back, or buy back a different asset.

Sources & References

Primary references used for this content

Notice 2014-21

Virtual Currency Guidance

IRS guidance on virtual currency as property

View on irs.gov

Publication 544

Sales and Other Dispositions of Assets

Capital gains and losses

View on irs.gov

Topic No. 409

Capital Gains and Losses

Short-term vs long-term rates

View on irs.gov

✓3 primary sources; links re-checked on a weekly rotation by the source watcher

Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.