How are Bitcoin gains taxed in the US?
Taxable events, rates, and forms.
Every scenario where the IRS cares about your Bitcoin, in one page. Buying, selling, spending, mining, gifts, inheritance, Roth IRAIndividual Retirement Account (IRA)A retirement account with tax advantages and eligibility rules. Traditional IRA contributions may be deductible; taxable withdrawals generally enter income. Roth contributions use after-tax money, and qualified Roth withdrawals are tax-free.Full definition. What's taxable, at what rate, and what form you file. This is not legal or tax advice.
Reading time: ~13 minutes · Deep dives: Tax-Loss Harvesting, Asset Location, Roth Conversion Ladder, Stepped-Up Basis.
The IRS treats Bitcoin as property, not currency. Every disposal, sale, spend, swap, even for another crypto, is a taxable event. Hold over 1 year for long-term capital gainscapital gainsThe profit from selling an asset for more than you paid for it. Taxed differently depending on how long you held the asset. (0–20%); 1 year or less is ordinary income (up to 37%). Mining income is taxed at receipt, then again on disposal.
- Buying Bitcoin with USD is not taxable. Selling, spending, or swapping triggers a tax event. Gifting above $19,000 per recipient requires Form 709 but no tax until you exceed the $15M lifetime exemption.
- Long-term gains (held >1 year): 0%, 15%, or 20% depending on income. Short-term: taxed as ordinary income up to 37%.
- Mining and stakingstakingLocking up your crypto to help validate transactions on networks like Ethereum, in exchange for a reward paid in more of the same crypto. Bitcoin does not work this way; Bitcoin uses energy-based mining instead. rewards are taxed as ordinary income at fair market value when received.
- Cost basiscost basisWhat you originally paid for an asset. Used to calculate how much profit (or loss) you made when you sell.Full definition method matters: FIFO, LIFO, or specific identification can change your tax bill significantly.
- Bitcoin has no wash-sale rule as of 2026, you can sell at a loss, immediately rebuy, and still claim the deduction.
This page covers US-specific accounts and tax law. Outside the US? The priority order is the same, the account names differ (ISAIndividual Savings Account (ISA)A UK tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition in the UK, TFSATax-Free Savings Account (TFSA)A Canadian tax-advantaged account where contributions are post-tax but all growth and withdrawals are tax-free.Full definition/RRSPRegistered Retirement Savings Plan (RRSP)A Canadian tax-deferred retirement account; contributions reduce taxable income and growth is tax-deferred until withdrawal.Full definition in Canada, Super in Australia, etc.).
Tax-year figures. Limits, brackets and thresholds on this page are for the tax year named next to them. They change every year.
The IRS treats Bitcoin as property, not currency. This is established by IRS Notice 2014-21, the original guidance classifying virtual currency as property for federal tax purposes, and refined by Rev. Rul. 2023-14 don't trust, verify×DON'T TRUST, VERIFYClaim: Specific IRS revenue ruling number and scope for crypto staking guidance.Verify at: IRS.gov ↗ Source 1 in the list belowVerify exact ruling number and that it has not been superseded. covering staking rewards and related treatment. Every time you dispose of Bitcoin, selling it, spending it, or trading it, you may owe capital gains tax on the difference between what you paid and what you got. If you buy and hold, there is zero tax until you dispose. Long-term holds (>12 months) are taxed dramatically lower than short-term holds.
On this page
-
Bitcoin is propertyHolding it is not taxed until you dispose
- Acquiring itCost basis: what you paid, or value when earned
- Buy with dollarsNot taxableNo form to file
- Mine or earn itOrdinary incomeValue when received; gains taxed again on sale
- Buy with dollars
- Disposing of itSell, spend or swap: gain or loss = sale price − cost basis
- Held 12 months or lessShort-termOrdinary income rates, up to 37%
- Held over 12 monthsLong-term0%, 15% or 20% by income; top rate 20%, not 37%
- Held 12 months or less
Buying Bitcoin
Buying Bitcoin with U.S. dollars is not a taxable event. You're converting one form of property (cash) into another (BTCBitcoin (BTC)The ticker symbol for Bitcoin, used on exchanges and in price quotes.Full definition). 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.
Selling Bitcoin for dollars
Capital gain = sale price − 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, taxed as ordinary income.
Married filing jointly: the 0% bracket is double (~$98,900); 20% starts above $613,700. Thresholds are adjusted for inflationinflationA general increase in prices over time, meaning each dollar buys less than it did before.Full definition annually. There's also a Net Investment Income Tax (NIITNet Investment Income Tax (NIIT)A 3.8% extra federal tax on investment income for higher earners (above $200k single, $250k married).Full definition) of 3.8% on top, for high earners (MAGIModified Adjusted Gross Income (MAGI)Your taxable income with certain deductions added back in. The IRS uses this slightly different number to decide if you qualify for some tax breaks.Full definition > $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 in the top bracket, the difference between short-term (37% = $37K) and long-term (20% = $20K) is $17,000. That's one rule, one line of code, two-week delay. Free money.
Show the data as a table
| W-2 salary | Short-term tax | Long-term tax | Short-term % of gain | Long-term % of gain | Extra tax from selling early | NIIT in both |
|---|---|---|---|---|---|---|
| $40,000 | $8,350 | $3,668 | 16.7% | 7.3% | $4,682 | $0 |
| $60,000 | $10,350 | $6,668 | 20.7% | 13.3% | $3,682 | $0 |
| $100,000 | $11,564 | $7,500 | 23.1% | 15.0% | $4,064 | $0 |
| $150,000 | $12,000 | $7,500 | 24.0% | 15.0% | $4,500 | $0 |
| $250,000 | $18,730 | $9,400 | 37.5% | 18.8% | $9,330 | $1,900 |
| $400,000 | $19,400 | $9,400 | 38.8% | 18.8% | $10,000 | $1,900 |
Short-term gains stack on the salary at ordinary rates; long-term gains stack in the 0/15/20% bands. The 3.8% NIIT hits both once salary plus gain passes $200,000. At a $250,000 salary, selling one day early costs $9,330 more. In the top bracket (37% vs 20%), the gap on $100,000 of gains is the $17,000 above. State tax comes on top: see bitcoin state taxes.
Spending Bitcoin
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.
This is why most U.S. holders don't spend Bitcoin, the tracking overhead is brutal. Better: spend fiat for daily purchases, DCADollar-cost averaging (DCA)Investing a fixed amount on a regular schedule, such as $50 every payday, regardless of price. It spreads out when money enters the market and buys more units when prices are low, but it does not guarantee a better price than investing all at once, a profit or protection against loss.Full definition 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 .
Mining income
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, Bitcoin doesn't have staking) and mining rewards are treated identically for tax purposes under Rev. Rul. 2023-14 (staking) and Notice 2014-21 (mining).
The same income-at-receipt rule applies when you are paid in Bitcoin; earning Bitcoin and taxes covers wages, invoices, and tips.
Gifts
You can gift up to the annual exclusion (roughly $19,000 per recipient in 2026 ) without any tax filing. Above that, you file Form 709 (Gift Tax Return) but don't owe any tax until you exceed the lifetime exemption ($15M in 2026 ).
The recipient inherits your cost basis, 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.
Inheritance (stepped-up basis)
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 → 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. See Stepped-Up Basis for the full mechanics and pitfalls.
Bitcoin in a Roth IRA
A Roth IRA is funded with after-tax dollars. All growth and all qualified withdrawals (age 59½+, 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 ETFsExchange-Traded Fund (ETF)A basket of investments (stocks, bonds, or Bitcoin) that trades on a stock exchange like a single share. (IBIT, FBTC, BITB, ARKB, etc.) are held inside Roth IRAs at Fidelity, Schwab, and most brokerages, no special "crypto IRA" provider needed. Contribution limit is $7,500/year ($8,600 if 50+) in 2026 . Max the Roth IRA every single year as priority #2 in the order of operations. A multi-decade Roth can also be built via a Roth conversion ladder.
Form 8949: what you file
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:
- Description of property (e.g., "0.25 BTC")
- Date acquired
- Date sold/disposed
- Proceeds (USD you received)
- Cost basis (USD you paid)
- Gain or loss
- Short-term or long-term (hold period check)
If you made 400 DCA purchases and 3 sales that year, you might have hundreds of rows, 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.
Tax software: Koinly vs. CoinTracker
Both import from River, Strike, Cash App, Coinbase, hardware wallets (via public keypublic keyYour Bitcoin wallet address, what you share to receive Bitcoin. Anyone can see it but can't use it to spend your funds.Full definition 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 | Yes | Yes |
| TurboTax integration | Yes | Yes (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 |
, both services change their tiers annually. Check koinly.io/pricing and cointracker.io/pricing for current.
State residency for large exits
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 5–13% in state tax alone.
| State | Income Tax | Capital Gains | Notes |
|---|---|---|---|
| Tennessee | 0% | 0% | Hall tax on investment income repealed effective Jan 1, 2021, TN has no state income tax on wages OR capital gains[3] |
| Florida | 0% | 0% | Retirement-friendly, no estate tax |
| Texas | 0% | 0% | High property tax offsets some gains |
| Nevada | 0% | 0% | Gaming-oriented economy |
| Washington | 0% | 7% (over ~$270K), 9.9% over $1M | New capital gains tax since 2022 |
| Wyoming | 0% | 0% | Pro-Bitcoin legislation |
| California | Up to 13.3% | Up to 13.3% | Capital gains taxed as ordinary income |
| New York | 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 move, 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 (the common state-residency threshold; each state sets its own standard, and California in particular uses a facts-and-circumstances domicile test rather than a strict day count ), 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 and Asset Location.
What the IRS already knows
Assume they see everything. U.S. exchanges (Coinbase, Kraken, Gemini, River, Strike) all file information returns reporting your transactions to the IRS. Starting with tax year 2025, a new Form 1099-DA specifically for digital assets also applies . 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 20–75% of the unpaid tax plus interest.
Wash-sale rules and crypto: current status
The wash-sale rule (IRC §1091) prevents investors from claiming a tax loss on a security if they buy the same or substantially identical security within 30 days before or after the sale. It was written specifically for securities, and the IRS classifies Bitcoin as property (under Notice 2014-21[4]), not a security.
The wash-sale rule does not apply to Bitcoin under current U.S. tax law. You can sell Bitcoin at a loss, immediately repurchase, and still claim the tax loss. This is the Bitcoin-only tax advantage traditional securities investors don't have verify×DON'T TRUST, VERIFYClaim: The wash-sale rule does not apply to Bitcoin under current U.S. tax law.Verify at: IRS Notice 2014-21 ↗ · congress.gov ↗ Source 4 in the list belowThis is active legislative territory. Multiple bills have been introduced to extend the wash-sale rule to cryptocurrency. Verify current status before acting on tax-loss harvesting strategy..
Concretely: sell BTC at a loss in December, capture the tax deduction, buy it back the same day. On $10,000 of losses in a top federal bracket (plus state), the deduction is worth around $3,000 to $4,000 depending on your state. See Tax-Loss Harvesting for the full step-by-step playbook.
Legislative risk (watch this)
Multiple bills have been introduced in Congress to extend the wash-sale rule to cryptocurrency. None have passed as of this page's last update. The provision has appeared in several versions of Build Back Better and related tax-reconciliation packages over 2021 to 2025, and it tends to resurface in revenue-raising proposals. The closer crypto gets to a security-style classification (via ETFs, broker reporting under Form 1099-DA[5], or SEC-led frameworks), the more likely this change becomes.
Before using tax-loss harvestingtax-loss harvestingSelling an investment that has declined to realize a tax loss, then buying a similar investment, reducing your tax bill without changing your portfolio.Full definition strategies on Bitcoin in any given tax year:
- Check the current status of the wash-sale rule as it applies to digital assets at irs.gov.
- Search congress.gov for any enacted legislation extending §1091 to digital assets.
- For any position above ~$10K in realized losses, consult a CPA who specifically understands crypto tax. The rule change, if enacted, could be retroactive to the tax year in which it passes.
Use once per December (while this is still legal) if your portfolio has any BTC with a cost basis higher than current price. Takes 5 minutes on most exchanges. Can offset up to $3,000 of ordinary income per year, with losses carrying forward indefinitely.
Quick answers.
Five deep dives, in order
The umbrella page above covers the basics. These five pages take each lever to its full depth.
Related tax-strategy deep dives
Where to go from here
Sources
Bracketed numbers and verify badges in the text link to these sources. Figures, rates and rules change: check each source’s date before acting on it.
- IRS Rev. Rul. 2023-14 (staking income) - irs.gov/pub/irs-drop/rr-23-14.pdf ↩
- 2026 LTCG brackets, annual gift exclusion, lifetime estate exemption, IRA contribution limits - confirm in IRS Rev. Proc. 2025-32 and Notice 2025-67 before citing specific dollar amounts - irs.gov ↩
- Tennessee Hall Income Tax repeal - Public Chapter 181 (2016), phased down to full repeal effective January 1, 2021. Tennessee Department of Revenue - tn.gov/revenue ↩
- IRS Notice 2014-21 - foundational "virtual currency is property" guidance - irs.gov/pub/irs-drop/n-14-21.pdf ↩
- IRS Form 1099-DA (digital asset broker reporting, 2025+) - irs.gov/forms-pubs/about-form-1099-da. ↩
- IRS Form 8949 instructions - irs.gov/forms-pubs/about-form-8949
- IRS Form 1040 Digital Asset question - irs.gov/forms-pubs/about-form-1040
- IRS Publication 544 (Sales and Other Dispositions of Assets) - irs.gov/publications/p544
- Koinly pricing - koinly.io/pricing
- CoinTracker pricing - cointracker.io/pricing
- IRC § 1091 wash-sale rule applies to "stock or securities"; Bitcoin is classified as property under IRS Notice 2014-21 and therefore falls outside the rule today. Extensions to digital assets have been proposed in the Build Back Better Act (2021), the Lummis-Gillibrand Responsible Financial Innovation Act (2022), and subsequent budget reconciliation bills. - congress.gov
Last updated . 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. Disclosures · How pages are reviewed