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.

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What's a digital asset

A digital asset is a digital representation of value recorded on a cryptographically secured distributed ledger or similar technology. If a particular asset has characteristics of a digital asset, it's treated as one for federal income tax purposes.

Examples of digital assets

  • Convertible virtual currency and cryptocurrency
  • Stablecoins
  • Non-Fungible Tokens (NFTs)

Digital assets are not real currency (also known as fiat) because they aren't:

  • The coin and paper money of the United States or another country
  • Digitally issued by a government's central bank.

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 into real currencies or other digital assets

How to answer the digital asset question on your tax return

On your 2023 federal tax returns, you must answer "Yes" or "No" to a digital asset question:

At any time during 2023, 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)?

The question appears at the top of these tax returns:

Depending on the form, the digital assets question is written toward individual, corporate, partnership or estate and trust taxpayers.

If you had digital asset transactions, in general, answer "Yes"

Normally, you must check "Yes" in the digital assets box if you had any of these transactions:

  • Received digital assets as payment for property or services provided
  • Received digital assets resulting from a reward or award
  • Received new digital assets resulting from mining, staking and similar activities
  • Received digital assets resulting from a hard fork
  • Disposed of digital assets in exchange for property or services
  • Disposed of a digital asset in exchange or trade for another digital asset
  • Sold a digital asset
  • Otherwise disposed of any other financial interest in a digital asset 

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

If you answered "Yes," find how to report digital asset income.

If you didn't have digital asset transactions, in general, answer "No"

Normally, you check "No" in the digital assets box if you:

  • Didn't own any digital assets
  • Only owned digital assets and didn't have any digital asset transactions during the year

If you had certain digital asset activities, in general, answer "No"

You can check the "No" box if you had any of these activities:

  • Held digital assets in a wallet or account
  • Transferred digital assets from one wallet or account you own or control to another wallet or account you own or control
  • Purchased digital assets using U.S. or other real currency, including through electronic platforms

How to report digital asset income

If a digital asset transaction results in taxable gain or loss, you must report all income from your digital asset transactions. Follow these steps:

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.

Frequently Asked Questions (FAQs) on virtual currency transactions

Calculate your capital gain or loss

To calculate the capital gain or loss of a digital asset that you disposed of in a taxable 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

Find how to calculate gain or loss and determine fair market value for your situation: FAQs on virtual currency transactions.

How to determine if your capital gain or loss is short-term or long-term

The period when you held the digital asset (the holding period) begins on the day after you acquired the digital asset and ends on the day you sell or exchange it.

  • 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 the cost of it. Generally, the basis of a digital asset is the cost in U.S. dollars plus any allocated transaction costs when you purchased or exchanged it.

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 details on basis in Basis of Assets, Publication 551.

Report digital asset income on the right 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. Report your capital gain or loss on the transaction on Schedule D (Form 1040), Capital Gains and Losses.

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 IncomePDF.

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

Publications

Related

  • IRS Notice 2014-21 – guides individuals and businesses on the tax treatment of transactions using convertible virtual currencies. For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
  • Revenue Ruling 2019-24PDF – Addresses the tax implications of a hard fork.
  • Chief Counsel Advice (CCA) 202035011PDF – Describes the tax consequences of receiving convertible virtual currency as payment for performing microtasks through a crowdsourcing platform.
  • Chief Counsel Advice (CCA) 202114020PDF – Addresses the receipt of Bitcoin Cash as a result of the hard fork.
  • Chief Counsel Advice (CCA) 202124008PDF – Explains that Internal Revenue Code Section 1031 does not apply to exchanges of Bitcoin for Ether, Bitcoin for Litecoin, or Ether for Litecoin.
  • Chief Counsel Advice (CCA) 202302011PDF – Addresses the applicability of IRC section 165 to cryptocurrency that has declined in value.
  • Chief Counsel Advice (CCA) 202302012PDF – Addresses the qualified appraisal requirement for charitable contributions of cryptocurrency.
  • Private Letter Ruling 202019028PDF – Addressed certain issues related to the tax-exempt status of entities in the digital asset industry.
  • FinCEN Notice 2020-2PDF – Provides guidance on Report of Foreign Bank and Financial Accounts (FBAR) reporting requirements related to virtual currency.