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 On this page What's a digital asset How to answer the digital asset question on your tax return How to report digital asset transactions 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: Form 1040, Individual Income Tax Return Form 1040-SR, U.S. Tax Return for Seniors Form 1040-NR, U.S. Nonresident Alien Income Tax Return Form 1041, U.S. Income Tax Return for Estates and Trusts Form 1065, U.S. Return of Partnership Income Form 1120, U.S. Corporation Income Tax Return Form 1120-S, U.S. Income Tax Return for an S Corporation 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 Calculate your capital gain or loss Determine your basis Report the income on the correct form 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 Frequently asked questions on virtual currency transactions expand upon the examples provided in Notice 2014-21 and apply those same longstanding tax principles to additional situations Publications Taxable and Nontaxable Income, Publication 525 – Miscellaneous income from exchanges involving property or services Charitable Contributions, Publication 526 – Charitable contribution deductions Sales and Other Dispositions of Assets, Publication 544 – Capital assets and the character of gain or loss Basis of Assets, Publication 551 – Computation of basis Determining the Value of Donated Property, Publication 561 – Appraisal of donated property worth more than $5,000 Guidance Final Regulations 2024-07-09 – Gross proceeds and basis reporting by brokers and determination of amount realized and basis for digital asset transactions Revenue Procedure 2024-28 - Guidance to allocate basis in digital assets to wallets or accounts as of January 1, 2025 Notice 2024-57 – Broker reporting and penalty relief for certain digital asset transactions Notice 2024-56 - Transitional relief for information reporting and backup withholding on digital assets by brokers Revenue Ruling 2023-14 – Taxability of staking income Revenue Ruling 2019-24 – Tax implications of a hard fork Notice 2023-34 – Modifies Notice 2014-21 background section to remove the statement that virtual currency doesn’t have legal tender status and to make other changes Notice 2023-27 – Treatment of certain NFT as collectibles Notice 2014-21 – Tax treatment of transactions using convertible virtual currencies Chief Counsel Advice (CCA) 202444009 PDF – Frozen rewards related to bankrupt digital asset platforms Chief Counsel Advice (CCA) 202316008 PDF – Individual tax consequences when holding a cryptocurrency native to a blockchain distributed ledger that has a protocol upgrade Chief Counsel Advice (CCA) 202035011 PDF – Tax consequences of receiving convertible virtual currency as payment for performing microtasks through a crowdsourcing platform Chief Counsel Advice (CCA) 202114020 PDF – Receipt of Bitcoin Cash as a result of the hard fork Chief Counsel Advice (CCA) 202124008 PDF – IRC Section 1031 doesn't apply to exchanges of Bitcoin for Ether, Bitcoin for Litecoin, or Ether for Litecoin Chief Counsel Advice (CCA) 202302011 PDF – Applicability of IRC section 165 to cryptocurrency that has declined in value Chief Counsel Advice (CCA) 202302012 PDF – Qualified appraisal requirement for charitable contributions of cryptocurrency Private Letter Ruling 202019028 PDF – Certain issues about the tax-exempt status of entities in the digital asset industry FinCEN Notice 2020-2 PDF – Report of Foreign Bank and Financial Accounts (FBAR) reporting requirements related to virtual currency 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
