Every scenario where the IRS cares about your Bitcoin, in one page. Buying, selling, spending, mining, gifts, inheritance, Roth IRA. What's taxable, at what rate, and what form you file. This is not legal or tax advice.
Not tax advice. This page summarizes general U.S. tax rules as best we understand them for tax year 2026. Tax law changes annually. Rates and thresholds marked [VERIFY] need confirmation against current IRS publications. For anything more than $10K in gains, hire a CPA who understands Bitcoin.
The IRS treats Bitcoin as property, not currency. Every time you dispose of it β selling it, spending it, trading it, gifting it in specific cases β you may owe capital gains tax on the difference between what you paid and what you got. If you just buy and hold, there is zero tax until you dispose. Long-term holds (>12 months) are taxed dramatically lower than short-term holds.
Buying Bitcoin with U.S. dollars is not a taxable event. You're just converting one form of property (cash) into another (BTC). No tax. No form.
What you should track: the date, dollar amount, BTC amount, and price per BTC of every purchase. This is your cost basis. You'll need it years later when you sell or spend. Tax software (Koinly, CoinTracker) imports from River, Strike, Cash App, and Coinbase automatically.
Capital gain = sale price β cost basis. If you held for more than 12 months before selling, it's a long-term capital gain (much lower rate). If 12 months or less, short-term β taxed as ordinary income.
Married filing jointly brackets are roughly double. Thresholds are adjusted for inflation annually. There's also a Net Investment Income Tax (NIIT) of 3.8% on top, for high earners (MAGI > $200K single / $250K joint).
Short-term gains stack on top of your W-2 income and are taxed at your marginal income tax bracket: 10%, 12%, 22%, 24%, 32%, 35%, or 37%. On a high-income sale, a short-term gain can be taxed nearly 2x the equivalent long-term gain. Hold 12 months plus a day before selling if you have any choice about it.
Rule #1 of taking profits: hold 12 months plus a day. On $100,000 of gains, the difference between short-term (~37% = $37K) and long-term (15% = $15K) is $22,000. That's one rule, one line of code, two-week delay. Free money.
The IRS treats spending BTC the same as selling. If you buy a $5 coffee with Bitcoin that cost you $2 to acquire, you have a $3 capital gain. On every transaction. Yes, really.
This is why most U.S. holders don't spend Bitcoin β the tracking overhead is brutal. Better: spend fiat for daily purchases, DCA any savings into BTC, hold until retirement or major purchase. A de minimis exemption for small Bitcoin transactions has been proposed repeatedly in Congress but has not yet been passed [VERIFY current year].
Mining rewards are taxed as ordinary income at the fair market value on the day you received them. That amount also becomes your cost basis. Later, when you sell or spend those coins, the gain vs. that cost basis is taxed again as capital gains.
Staking rewards (on altcoins β Bitcoin doesn't have staking) and mining rewards are treated identically for tax purposes under Rev. Rul. 2023-14.
You can gift up to the annual exclusion (roughly $19,000 per recipient in 2026 [VERIFY IRS]) without any tax filing. Above that, you file Form 709 (Gift Tax Return) but don't actually owe any tax until you exceed the lifetime exemption (~$13.99M in 2026 [VERIFY]).
The recipient inherits your cost basis β not the market value at gift time. If you gift $10K worth of BTC that you bought for $500, when they sell, they pay capital gains on the full $9,500 gain.
When Bitcoin is inherited, the heir's cost basis is "stepped up" to the fair market value at the date of death. All capital gains that accrued during the original owner's lifetime are wiped away for tax purposes.
Example: Dad bought 1 BTC in 2015 for $300. Dies in 2040 when BTC is $2M. Son inherits that BTC with a new cost basis of $2M. Son immediately sells for $2M β zero taxable gain. If Dad had sold the day before dying, it would have been a $1.9997M capital gain and tax bill.
This is one of the single largest tax advantages available to Bitcoin holders, and it's why inheritance planning matters so much. Die holding Bitcoin, and you legally pass tax-free generational wealth to your heirs, up to the federal estate tax exemption.
A Roth IRA is funded with after-tax dollars. All growth and all qualified withdrawals (age 59Β½+, held 5+ years) are completely tax-free. If Bitcoin goes 10x inside your Roth, you owe zero federal tax on the gain.
Since January 2024, spot Bitcoin ETFs (IBIT, FBTC, BITB, ARKB, etc.) are held inside Roth IRAs at Fidelity, Schwab, and most brokerages β no special "crypto IRA" provider needed. Contribution limit is $7,000/year ($8,000 if 50+) in 2026 [VERIFY]. Max the Roth IRA every single year as priority #2 in the order of operations.
Every taxable Bitcoin disposal in a given tax year gets reported on IRS Form 8949 (Sales and Other Dispositions of Capital Assets), then summarized on Schedule D. Each row on Form 8949 has:
If you made 400 DCA purchases and 3 sales that year, you might have hundreds of rows β each DCA batch can be "lot-matched" to a sale using FIFO, LIFO, or HIFO accounting. Tax software handles this automatically; doing it by hand is a miserable weekend.
Both import from River, Strike, Cash App, Coinbase, hardware wallets (via public key watch-only mode), and can export a completed Form 8949 PDF. They compete on price, accuracy edge cases, and accountant-friendliness.
| Feature | Koinly | CoinTracker |
|---|---|---|
| Free tier | Up to 10,000 txns (view only) | Up to 25 txns (view + basic export) |
| Paid tier starts | ~$49/yr (100 txns) | ~$59/yr (100 txns) |
| Form 8949 export | β | β |
| TurboTax integration | β | β (native Intuit partner) |
| Accounting method choice | FIFO / LIFO / HIFO / Specific ID | FIFO / HIFO / Specific ID |
| Lightning wallet support | Limited | Limited |
| Best for | Heavy DCA'ers, lot-optimizers | Integrated TurboTax filers |
[VERIFY pricing] β both services change their tiers annually. Check their websites for current.
State income tax is applied in addition to federal. If you're planning a large BTC sale ($500K+ gain), moving your domicile to a no-state-income-tax state before selling can save 5β13% in state tax alone.
| State | Income Tax | Capital Gains | Notes |
|---|---|---|---|
| Tennessee πΉπ³ | 0% | 0% | Popular Bitcoin hub, Nashville tech scene |
| Florida π«π± | 0% | 0% | Retirement-friendly, no estate tax |
| Texas πΉπ½ | 0% | 0% | High property tax offsets some gains |
| Nevada π° | 0% | 0% | Gaming-oriented economy |
| Washington πΌπ¦ | 0% | 7% (over ~$270K) | New capital gains tax since 2022 |
| Wyoming πΊπΈ | 0% | 0% | Pro-Bitcoin legislation |
| California π» | Up to 13.3% | Up to 13.3% | Capital gains taxed as ordinary income |
| New York π½ | Up to 10.9% | Up to 10.9% | NYC adds another ~3.9% local |
California, New York, and New Jersey aggressively audit former residents who move and claim new domicile right before a large sale. To succeed, you need to actually move β sell/rent out your prior home, register to vote in the new state, get a new driver's license, move your family, spend more than 183 days outside the old state, close old state bank accounts and loyalty programs. Halfway doesn't work.
On a $1M BTC sale, moving from California (13.3%) to Tennessee (0%) saves $133,000. On a $5M sale, $665,000. That pays for the move several times over. More in Exit Strategy β.
Assume they see everything. U.S. exchanges (Coinbase, Kraken, Gemini, River, Strike) all file Form 1099-B reporting your transactions to the IRS. Starting with tax year 2025, a new Form 1099-DA specifically for digital assets also applies [VERIFY current status]. The "crypto is anonymous" era ended around 2020.
Every Form 1040 since 2020 has included the question: "At any time during [year], did you receive, sell, exchange, or otherwise dispose of any digital asset?" Answering no when you did is tax fraud.
Correct move: report everything honestly. Use tax software. Pay what you owe. If you under-report and get audited (which happens at a higher rate for digital asset filers), penalties can be 20β75% of the unpaid tax plus interest.
The wash-sale rule β which disallows a capital loss if you buy the same security back within 30 days β technically does not currently apply to Bitcoin. The IRS treats it as property, not a security, and the wash-sale rule is written for securities.
Legally, that means you can sell BTC at a loss in December, capture the tax deduction, and buy it right back the same day. On $10,000 of losses, that's a ~$3,700 tax reduction in a top bracket. For 2026 [VERIFY] β this loophole has been targeted for closure in every major tax-reform bill, so it may not last.
Use this once per December if your portfolio has any BTC with a cost basis higher than current price. Takes 5 minutes on River. Can offset up to $3,000 of ordinary income per year (carries forward indefinitely).
Last updated 2026-04-14. Tax law changes annually. This is educational content, not legal or tax advice. For personal decisions involving more than $10K in gains, hire a CPA.