Digital assets

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You may have to report transactions with digital assets such as cryptocurrency and non fungible tokens (NFTs) on your tax return. Income from digital assets is taxable.

Frequently asked questions on virtual currency transactions

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What's a digital asset

For U.S. tax purposes, digital assets are considered property, not currency.

A digital asset is stored electronically and can be bought, sold, owned, transferred or traded.

The tax definition of a digital asset is any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology (Infrastructure Investment and Jobs Act).

Examples of digital assets

These include:

  • Convertible virtual currencies and cryptocurrencies such as Bitcoin
  • Stablecoins
  • Non fungible tokens (NFTs)

How a digital asset is used

A digital asset that has an equivalent value in real currency, or acts as a substitute for real currency, is referred to as convertible virtual currency, for example, a cryptocurrency. It can be:

  • Used to pay for goods and services
  • Digitally traded
  • Exchanged for or converted into currencies or other digital assets

How to answer the digital asset question on your tax return

On your 2023 federal tax return, you must answer "Yes" or "No" to a digital asset question:

At any time during the tax year, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?

A version of the question appears on these tax returns:

If you didn't have digital asset transactions, answer "No"

Check No in the digital assets box if you:

  • Didn't own any digital assets
  • Only owned or held digital assets in a wallet or account, but did not engage in any digital asset transactions during the year
  • Purchased, but did not sell, digital assets using U.S. or other real currency, including through electronic platforms
  • Transferred digital assets from one wallet or account you own or control to another wallet or account you own or control (unless you paid a transaction fee with digital assets. This would be a digital asset transaction.)

If you had digital asset transactions, answer "Yes"

If you answer Yes, find how to report digital asset transactions.

Check Yes in the digital assets box if you:

Received digital assets for:

  • Payment for property or services provided
  • A reward or award
  • Mining, staking and similar activities
  • An airdrop as it relates to a hard fork

Disposed, sold, exchanged or transferred ownership of digital assets:

  • For another digital asset
  • For U.S. dollars or other currency
  • In exchange or trade for property, goods or services in any amount
  • By paying a transfer fee with digital assets
  • By a transfer of ownership or financial interest

You have a financial interest in a digital asset if you:

  • Are recorded as the owner of a digital asset
  • Have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest
  • Own a wallet that holds digital assets

How to report digital asset transactions

If you have digital asset transactions, you must report them whether or not they result in a taxable gain or loss.

You should:

Keep records

If you had digital asset transactions, keep records that document:

  • Your purchase, receipt, sale, exchange or any other disposition of the digital assets
  • The fair market value as measured in U.S. dollars of all digital assets received as income or as a payment in the ordinary course of a trade or business

The Internal Revenue Code and regulations require taxpayers to maintain sufficient records to establish the positions taken on federal income tax returns.

Calculate your capital gain or loss

To calculate the capital gain or loss of a digital asset that you sold or disposed of in a transaction, you'll need this information:

  • Type of digital asset
  • Date and time of transaction
  • Number of units
  • Fair market value at time of transaction (as measured in U.S. dollars)
  • Basis of digital asset sold or disposed of

Find how to calculate gain or loss, identify the units sold or disposed, and determine fair market value for your situation: FAQs on virtual currency transactions.

If you own and use a digital asset for personal or investment purposes

The income would be taxed as a capital gain or loss when you sell or dispose it.

If you receive a digital asset in exchange for goods or services in a business context

The income would be taxed as ordinary income or a loss.

Find details about ordinary or capital gain or loss.

How to determine if your capital gain or loss is short-term or long-term

  • Short-term capital gain: If you held the digital asset as a capital asset for one year or less before selling, exchanging, or otherwise disposing of the digital asset.
  • Long-term capital gain: If you held the digital asset as a capital asset for more than one year before selling, exchanging, or otherwise disposing of it.

Find details on short-term and long-term capital gains and losses in Sales and Other Dispositions of Assets, Publication 544.

Determine your basis

The basis of property is its cost. Generally, the basis of a digital asset is the cost in U.S. dollars.

How you determine your basis for digital assets depends on the type of transaction you had.

Find how to determine your basis for your situation in FAQs on virtual currency transactions. To determine your basis, you'll need this information:

  • Type of digital asset you acquired (for example Bitcoin)
  • Date and time you acquired the digital asset
  • Number of units of the digital asset acquired
  • Fair market value of the digital asset when acquired (as measured in U.S. dollars)

Find additional details on Basis of Assets, Publication 551.

Report digital asset transaction on the correct form

The form you use depends on the type of transaction:

If you sold, exchanged or otherwise disposed of a digital asset you held as a capital asset

Use Form 8949, Sales and Other Dispositions of Capital Assets.

If you have other ordinary income related to digital assets

To report income from forks, staking, mining, etc., use Form 1040 (Schedule 1), Additional Income and Adjustments to Income PDF.

If you gave a gift in the form of digital assets

Use Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If you were paid as an employee or independent contractor with digital assets

For wages you receive as an employee, report the digital asset income on Form 1040, U.S. Individual Income Tax Return.

For payments you receive as an independent contractor, report the digital asset income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).

If you sold, exchanged or otherwise disposed of digital assets to customers

Report these transactions on Form 1040 (Schedule C), Profit or Loss from Business (Sole Proprietorship) PDF.

For details, see tax year 2023 1040 (and 1040-SR) instructions.

FAQs

Publications

Guidance

Related

  • News Release IR-2024-178 - Final regulations requiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency
  • Fact Sheet 2024-23 - Final regulations and related IRS guidance for reporting by brokers on sales and exchanges of digital assets
Page Last Reviewed or Updated: 06-Dec-2024