Crypto taxes, explained: Wallets, stocks, funds and futures

If you’re investing in crypto, you might be more focused on price trends than IRS tax forms. But whether you’re holding Bitcoin in a wallet, trading crypto futures, or buying a crypto exchange-traded product in a brokerage account, the IRS is paying attention. And depending on how you get your crypto exposure, you may owe taxes in ways that may not seem obvious or intuitive.

This article breaks down how crypto is taxed in the U.S., what events trigger federal income taxes, and why two investors with similar exposure may end up with very different after-tax results.

For U.S. federal tax purposes, cryptocurrency is treated as property, not currency.¹ This puts crypto in the same broad tax category as assets like stocks, bonds, and real estate, rather than cash. As a result, most crypto trading activity is governed by capital gains rules:

• Gains or losses: Whenever you dispose of crypto—by selling, trading, or spending it—you generally recognize a capital gain or a capital loss equal to the difference between the amount you received in the transaction and the asset’s “cost basis” (the original price you paid, including commissions and fees).²
• Short vs. long-term holdings: Investment assets, including crypto, held for one year or less are generally taxed at ordinary income tax rates, while assets held for more than one year benefit from preferential long-term capital gains rates.³

That said, not all crypto activity falls under capital gains rules.

Cryptocurrency received as compensation—including “airdrops” (token distributions sent to eligible wallet addresses) or “staking rewards” (tokens earned for helping validate or secure a blockchain network)—is generally taxed as ordinary income, at its fair market value when you gain dominion and control of it.⁴ That value then becomes the cost basis for future gain or loss calculations.

In addition, investors may face tax consequences if a “hard fork” event (when a blockchain splits after a protocol changes) results in them receiving units of a new digital asset and they have dominion and control over those units.

Directly owning crypto means you hold coins or tokens in a wallet or exchange account.

• Buying crypto with U.S. dollars is not a taxable event. However, the purchase price and transaction fees should be carefully tracked, because they establish the cost basis.² Similarly, transferring crypto between wallets owned by the same taxpayer is generally not a taxable event.⁵
• Selling crypto for cash, however, is a taxable event. For example, if you buy one Bitcoin for $80,000 and, more than one year later, sell it for $130,000, the $50,000 gain is generally taxed at long-term capital gains rates.
• Trading one crypto for another also triggers taxes, even though no dollars change hands. Trading Bitcoin for Ethereum, for instance, is treated as selling Bitcoin at its fair market value and using the proceeds to buy Ethereum¹—so, any gain or loss on the Bitcoin must be recognized immediately.
• Spending crypto works the same way, because it counts as a disposition of property, meaning any appreciation is taxable.¹ Let’s say you buy Ethereum for $2,000 and later use it to purchase a laptop when Ethereum is worth $3,000. The $1,000 increase in value is a taxable gain, even though no cash was involved.
• Crypto rewards are taxable events and are generally taxed as ordinary income. This can include the receipt of crypto as a reward for staking your position or from the receipt of new tokens from cryptocurrencies that entitle you to airdropped rewards.

Crypto futures sit closer to traditional derivatives than spot crypto, and their tax treatment reflects that. Bitcoin, Ethereum, and Solana futures all trade on regulated U.S. exchanges under Section 1256 of the Internal Revenue Code, which governs certain regulated futures contracts.⁶ Two key things to remember:

• These crypto futures contracts are subject to “mark-to-market” taxation, meaning they are treated as if they were sold at the end of every year, whether or not you actually closed the position.⁷
• Annual gains and losses are taxed under a blended formula: 60% is treated as long-term capital gain and 40% as short-term, regardless of how long the contract was held.⁶

This tax treatment may benefit active traders compared with short-term capital gains taxation, but it comes with a catch: It requires recognition of gains and losses on a mark-to-market basis at year-end, meaning you can owe taxes even if you haven’t sold the contract or received any cash. That surprise may make futures a less-than-ideal fit for long-term investors.

These tax characteristics also affect investment products that hold crypto futures, as the underlying futures' gains and losses flow through to investors indirectly.

Crypto exchange traded products (ETPs) allow investors to gain indirect crypto exposure through traditional brokerage accounts, but their tax treatment depends on how they are structured.

Spot crypto ETPs

These hold actual cryptocurrency, such as Bitcoin or Ethereum, on behalf of investors. Crypto ETPs may be structured as grantor trusts for tax purposes.

For these products, investors are responsible for income tax generated by the ETP’s investment activities, even if no cash is distributed to the investor. For example, if the crypto ETP actively trades a cryptocurrency throughout the year and earns staking rewards, its investors must report their pro-rata share of the underlying income on their personal income tax return.

In addition, for U.S. federal income tax purposes, gains or losses are generally recognized when an investor sells shares of the ETP, with tax rates based on whether shares are held for more than one year or for one year or less.

Futures-based crypto ETPs

These offer crypto exposure through regulated futures contracts, rather than directly holding crypto. Because the underlying assets are futures contracts, these products inherit the tax characteristics of Section 1256 contracts, including annual mark-to-market treatment and blended capital gains rates.^6,7 As a result, investors may recognize taxable income in years when they did not sell shares and may even owe taxes in years when the fund’s share price declined.

What about publicly traded “crypto equities”? Stocks of companies such as crypto miners, exchanges, infrastructure providers and companies that hold large crypto treasuries are taxed just like any other public stock under U.S. federal tax law.⁸

If you invest in crypto through a U.S. brokerage, tax reporting will usually feel familiar.

• ETPs: Direct sales of crypto ETPs are typically reported on IRS Form 1099-B,⁹ and generally any taxable distributions may appear on IRS Form 1099-DIV or IRS Form 1099-MISC.¹⁰ In addition, ETPs structured as grantor trusts issue tax statements that include information needed to determine the investor’s pro rata share of income, expense and capital gains or losses that are needed for tax reporting. These statements are typically issued by Mar. 15.      
• Wallets: Under current law, crypto-wallet-related sales are reportable on IRS Form 1099-DA, provided the wallet is custodial and the brokerage that custodies the assets executes the sale or exchange on your behalf.¹¹ Custodial brokerages are also required to track and report cost basis information for purchases made after Dec. 31, 2025, through their custodial platform.
• Futures: Generally, crypto futures traded on regulated U.S. exchanges and certain futures-based ETPs are often reported on a consolidated 1099 statement and reflect Section 1256 treatment.⁷

Beyond the information your brokerage may provide, keeping good records is essential. Tracking dates, prices, and fees as you go is far easier than trying to reconstruct potentially years of transactions after the fact.

Consult with your tax advisor to better understand the tax treatment of your digital assets and how to translate crypto activity into accurate reporting to the IRS.  

While crypto taxes cannot be avoided, thoughtful planning may help to reduce tax drag. Strategies to consider include:

• Holding crypto for more than one year to potentially benefit from the long term capital gains tax rate on any capital gains.³
• Realizing capital losses in order to potentially help offset capital gains elsewhere in your portfolio, through a process known as tax-loss harvesting, subject to certain capital loss limitations.¹²
• Being mindful about trading frequency, as high turnover increases short-term capital gains and tax-reporting complexity.

Cryptocurrency may be a relatively new phenomenon, but the tax system is not.

Whether you’re trading tokens in a wallet, buying futures, investing through ETPs, or owning shares of companies in the crypto industry, the IRS expects consistent reporting grounded in familiar principles. Understanding those principles—and choosing your exposure intentionally—can mean the difference between confident investing and an unpleasant surprise at tax time.

In crypto, as in investing more broadly, the smart move is often the least flashy one: knowing the rules first. And always be sure to work with a knowledgeable tax advisor.

Article Footnotes

¹ IRS Notice 2014-21, Virtual Currency Guidance: https://www.irs.gov/pub/irs-drop/n-14-21.pdf

² IRS Publication 551: https://www.irs.gov/pub/irs-pdf/p551.pdf

³ IRS Publication 544: https://www.irs.gov/publications/p544

⁴ IRS Notice 2014-21, Q&A 8 and Q&A 9 (income recognition): https://www.irs.gov/pub/irs-drop/n-14-21.pdf

⁵ IRS, Frequently Asked Questions on Virtual Currency Transactions, Q38: irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-digital-asset-transactions

⁶ Internal Revenue Code §1256

⁷ IRS Publication 550, Investment Income and Expenses (Section 1256 contacts): https://www.irs.gov/forms-pubs/about-publication-550

⁸ Based on IRS guidance that investment property such as stocks is a capital assert and gains or losses from its sale are capital gains or losses. See: IRS, Topic No. 409: Capital Gains and Losses, (Jan. 5, 2026): https://www.irs.gov/taxtopics/tc409

⁹ IRS Instructions for Form 1099-B

¹⁰ IRS Instruction for Form 1099-DIV and IRS Instruction for Form 1099-MISC

¹¹ IRS, Final regulations and related IRS guidance for reporting by brokers on sales and exchanges of digital assets, Newsroom, last updated November 7, 2025. https://www.irs.gov/newsroom/final-regulations-and-related-irs-guidance-for-reporting-by-brokers-on-sales-and-exchanges-of-digital-assets

¹² Internal Revenue Code §1211 and §1212 (capital loss limitation)

CRC# 5189586  02/2026