Cryptocurrency Tax: The 2026 Rules Every Holder Should Know

Notice 2014-21 established that cryptocurrency is property for federal tax purposes. Every time you dispose of crypto (sell for USD, trade for another crypto, spend on goods or services, gift above the annual exclusion), you realize a capital gain or loss equal to the difference between your basis and the fair market value at disposition.

Receiving crypto as payment for services, mining rewards, staking rewards, airdrops, hard forks, and most DeFi yield is ordinary income at fair market value on the date of receipt. That income then becomes the cost basis if you later dispose of those tokens.

Selling crypto for USD, trading one crypto for another, using crypto to buy goods or services, and earning crypto as income are all taxable. Buying crypto with USD and holding it is not. Transferring between your own wallets and exchanges is not. Gifting crypto under the annual exclusion ($19,000 in 2026) is not, although it carries forward your basis.

Hard forks that create new tokens received are ordinary income at FMV on the date you have dominion and control (Rev. Rul. 2019-24). Airdrops are similarly ordinary income. Wrapped-token swaps (ETH to wETH) are treated by most preparers as taxable swaps absent definitive guidance, although there is reasonable argument they are non-taxable.

Cost basis is the amount paid (in USD) for a crypto asset, plus any acquisition fees. When you dispose of part of a position, you choose a basis identification method: FIFO (first in, first out), LIFO, HIFO (highest in, first out), or specific identification. The IRS requires the method to be applied consistently per wallet under the new digital asset broker reporting rules.

Specific identification is the most powerful method for tax planning. It allows you to designate which lots are sold (typically the highest-basis lots in a gain year, or the lowest-basis lots in a loss year). It requires contemporaneous records that uniquely identify the lot at the time of disposition.

Crypto tax software (CoinTracker, Koinly, ZenLedger, TaxBit) is essentially required for active traders. Manual tracking across multiple exchanges and DeFi protocols is impractical and error-prone, and the IRS now expects much more granular reporting under the 2026 broker reporting framework.

NFTs follow the same property rules as fungible crypto: buying with crypto is a disposition of the crypto used to pay, and the NFT takes a basis equal to the FMV at acquisition. Selling an NFT triggers capital gain or loss based on holding period.

Some NFTs are classified as collectibles under IRC Section 408(m), which means long-term gains are taxed at a maximum rate of 28% rather than the standard 20% top rate. The IRS has signaled in Notice 2023-27 that NFTs representing tangible collectibles (art, gems, stamps) likely qualify, while purely digital utility NFTs may not.

NFT creators have ordinary income on initial sale (Schedule C if a trade or business) and royalty income on secondary market sales. Royalties paid through smart contracts are still ordinary income, taxed at the time of receipt.

As of 2026, the wash sale rule under IRC Section 1091 still does not apply to cryptocurrency because crypto is not classified as a security. This means crypto investors can sell at a loss and immediately repurchase the same asset to harvest the loss while maintaining position.

Congress has repeatedly proposed extending wash sale rules to digital assets, and most tax practitioners expect this to change. Until enacted, the strategy remains valid, but document your trades carefully and avoid coordinated trades through related parties (which could trigger Section 267 disallowance even without 1091).

Final Treasury regulations issued in 2024 require US-based digital asset brokers (centralized exchanges like Coinbase, Kraken, Gemini) to report customer transactions on Form 1099-DA starting with 2025 transactions, reported in early 2026. The form reports gross proceeds, and over time will phase in cost basis reporting for assets acquired through that broker.

For taxpayers, this means the IRS now has direct visibility into US exchange activity and is matching it to filed returns. Mismatches between Form 1099-DA proceeds and the gain/loss reported on Form 8949 will trigger automated CP2000 notices. DeFi and self-custody activity is not on the form, but the broker rules continue to expand.