Every Form 1040 and 1040-NR begins with a mandatory yes/no question regarding digital assets. The IRS classifies cryptocurrency as property, meaning every sale for fiat, crypto-to-crypto swap, or payment using crypto is a taxable capital gain or loss event.
Taxable vs. Non-Taxable Crypto Events
- Taxable as Capital Gains (Form 8949 & Schedule D): Selling crypto for USD, trading one token for another (e.g., BTC to ETH), or purchasing goods/services with crypto. Held over 12 months qualifies for lower long-term capital gains rates (0%, 15%, or 20%).
- Taxable as Ordinary Income: Staking rewards, mining income, airdrops, and compensation received in digital assets are taxed at your ordinary income bracket based on fair market value when received.
- Non-Taxable Events: Buying crypto with fiat currency and holding it, or transferring crypto between wallets you own.