Understanding Cryptocurrency Taxation: Current Rules and Key Questions in 2025
As cryptocurrency adoption continues to rise, understanding how it is taxed under current U.S. federal rules has become increasingly important. In 2025, the Internal Revenue Service (IRS) maintains that cryptocurrencies be treated as property, subjecting transactions to capital gains taxes and ordinary income tax where applicable. Alongside existing regulations, new reporting requirements and accounting methods are set to impact crypto investors and traders significantly.
Taxation Overview: Capital Gains and Ordinary Income
The IRS taxes cryptocurrency transactions primarily based on how the assets are acquired and disposed of. When an individual sells, trades, or uses cryptocurrency for purchases, capital gains taxes apply. Conversely, earning cryptocurrency—whether by mining, staking, working for crypto compensation, or receiving airdrops—is considered ordinary income and is taxed accordingly.
- Short-term capital gains: Taxed as ordinary income if cryptocurrency has been held for less than one year. Tax rates range from 10% to 37% depending on the taxpayer’s income bracket.
- Long-term capital gains: Applied when cryptocurrency is held for more than one year before disposal. Tax rates for these gains are comparatively lower, ranging from 0% to 20% based on income level and filing status.
- Ordinary income tax: Applied to crypto earned through compensation, mining, or staking, with the rate dependent on the individual’s overall taxable income.
2025 Tax Rates for Cryptocurrency
| Capital Gains Tax Type | Tax Rates | Notes |
|---|---|---|
| Short-Term Capital Gains | 10% – 37% | Taxed as ordinary income for crypto held less than one year. |
| Long-Term Capital Gains | 0%, 15%, or 20% | Depends on income and filing status; applies to crypto held more than a year. |
| Ordinary Income | 10% – 37% | Applies to crypto earnings, including mining and staking rewards. |
Income thresholds vary by filing status. For example, in 2025, single filers pay 0% long-term capital gains tax up to $48,350 in income, 15% between $48,351 and $533,400, and 20% above $533,401. Different thresholds apply for married couples and heads of household.
New Reporting Requirements & Wallet-by-Wallet Accounting
Effective January 1, 2025, new IRS regulations require brokers and crypto exchanges to report gross proceeds from crypto sales and exchanges using a new form known as Form 1099-DA. This reporting increases transparency by documenting the total amount received from sales before costs or fees, simplifying taxpayers’ calculations of gains and losses.
Starting January 1, 2026, brokers will also be required to report cost basis along with gross proceeds on Form 1099-DA, which helps taxpayers accurately determine their taxable gains or losses.
Additionally, a significant change is the mandated shift from the previously allowed universal accounting method to a wallet-by-wallet accounting method for calculating cost basis beginning with the 2025 tax year. Taxpayers must track their transactions and holdings separately by each wallet or account, complicating tax filing but aiming to improve precision in tax reporting.
Other Important Considerations
- Tax Treatment of NFTs: Some NFTs classified as collectibles could be subject to a higher long-term capital gains tax rate of 28%, an important distinction for crypto investors dealing with digital art and related assets.
- Reporting All Crypto Transactions: The IRS treats all transactions involving virtual currency—including sales, trades, earnings, and transfers—as taxable events. Failure to report can lead to penalties and audits.
- Future Regulations: Cryptocurrency taxation remains a dynamic area of law. Ongoing regulatory changes are expected, making it crucial for taxpayers to stay informed and consider professional tax advice to ensure compliance.
Practical Steps for Taxpayers
Taxpayers should ensure accurate record-keeping of crypto transactions across all wallets and exchanges. With the increased IRS reporting requirements, having detailed documentation will ease preparation of tax returns and reduce the risk of errors or audits.
Using tools such as crypto tax calculators and platforms that integrate with exchanges can simplify the reporting and calculation process. Additionally, beginning preparations early is advised given the complexity of wallet-by-wallet accounting introduced in 2025.
While the IRS continues to develop and refine cryptocurrency tax rules, understanding the fundamentals of how crypto is taxed, preparing for new reporting standards, and seeking expert guidance are essential for compliance during tax seasons ahead.