INTRODUCTION
Digital assets have transformed the financial world, creating new opportunities for growth but also adding new layers of complexity when it comes to taxes. With cryptocurrencies, stablecoins, and NFTs becoming increasingly common, understanding how they’re taxed isn’t just for tech enthusiasts — it’s essential for anyone investing in these assets.
This article offers a straightforward overview of how digital assets are treated for tax purposes in the United States. Our goal is to make sense of the rules, highlight key strategies, and help you feel more confident about staying compliant while making smart financial decisions.
At TruWealth Advisors, we believe in proactive, values-based planning. We’re here to guide you through the evolving digital asset landscape so your investments are aligned with both tax law and your long-term financial goals.
DIGITAL ASSETS ARE TREATED AS PROPERTY
The IRS classifies digital assets as property, not currency. This rule, established in IRS Notice 2014-21, means that digital assets are taxed much like stocks or real estate.
Here’s what that means in practice:
Every transaction matters. Using crypto to buy something, exchanging one token for another, or selling for cash counts as a taxable event.
Your cost basis matters. What you paid for the asset (plus any fees) sets your baseline for calculating gains or losses.
Holding periods matter. How long you hold the asset determines whether your gains are taxed at short-term (higher) or long-term (lower) rates.
TAXABLE VS. NON-TAXABLE EVENTS
It’s important to know which actions with digital assets trigger taxes — and which don’t.
Taxable Events include:
- Selling crypto for cash (e.g., Bitcoin → USD).
- Trading one digital asset for another (e.g., ETH → Cardano).
- Spending crypto on goods or services (the IRS treats it like a sale).
- Gifting crypto above the annual exclusion amount.
Non-Taxable Events include:
- Buying crypto with cash.
- Transferring crypto between wallets or accounts you own.
- Simply holding your assets long-term.
WHEN DIGITAL ASSETS COUNT AS INCOME
Some activities create ordinary income (taxed at your regular income tax rate), separate from capital gains.
Examples include:
- Mining or Staking Rewards – taxed at fair market value when received.
- Airdrops – counted as income when the tokens are under your control.
- Hard Forks – if new tokens are issued, they’re taxable as income at market value
- Payment for Services – if you’re paid in crypto, it’s taxed like wages or contractor income.
CAPITAL GAINS AND LOSSES
When you sell or trade digital assets, you’ll report capital gains or losses.
- Cost Basis: What you originally paid, including fees.
- Short-Term Gains: Assets held one year or less; taxed as ordinary income (up to 37%).
- Long-Term Gains: Assets held more than one year; taxed at favorable rates (0%, 15%, or 20%).
Example:
- Bought 1 ETH for $2,000 + $50 fee (basis = $2,050).
- Sold it six months later for $2,500.
- Gain = $450, taxed as short-term (ordinary income rate).
SMART TAX STRATEGIES FOR DIGITAL ASSETS
With planning, you may help reduce your tax burden and align your giving or estate planning with your goals.
Common strategies include:
Tax-Loss Harvesting: Selling assets at a loss to offset gains (and even up to $3,000 of ordinary income per year).
Charitable Donations: Donating appreciated crypto to a qualified charity lets you deduct the fair market value and avoid capital gains tax
Estate Planning: Leaving crypto to heirs at death provides a “step-up” in basis, resetting the taxable value to the market price at the time of inheritance
COMPLIANCE AND RECORD KEEPING
Because the IRS treats crypto like property, good record keeping is essential.
Forms to Know:
- Form 8949 & Schedule D for gains and losses.
- Schedule 1 or C for mining, staking, or crypto payments.
New Reporting Rules: Starting with 2025 transactions, crypto exchanges will issue Form 1099-DA to report your transactions directly to the IRS. By 2026, cost basis reporting will be required as well.
Crypto Tax Software: Given the volume of transactions some investors make, tax software is increasingly necessary to track everything correctly.
CONCLUSION
The tax treatment of digital assets may feel complicated, but with the right knowledge and strategy, it’s entirely manageable. By keeping good records, planning ahead, and seeking expert advice, you may help reduce surprises at tax time and stay on track with your broader financial goals.
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Disclosures
TruWealth Advisors, LLC is an SEC registered investment adviser located in Louisiana. Registration does not imply a certain level of skill or training. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or financial advice. Digital assets are highly speculative and involve a high degree or risk, including but not limited to risk of loss, market volatility, and regulatory uncertainty. You should consult your own tax, legal and financial professionals before engaging in any transaction. Past performance does not guarantee future results. Additional information about TruWealth Advisors, including our registration status, fees, and services is available on the SEC’s website at https://adviserinfo.sec.gov/firm/summary/306876.