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May 12, 2023
Crypto taxes keep evolving, and 2025 brings some of the biggest IRS changes traders have seen in years. With new forms, stricter reporting rules, and clearer definitions for taxable events, traders need to stay alert to avoid mistakes. The IRS now tracks more activity than ever, so understanding these rules early helps prevent surprises during filing season. This article explains the key IRS crypto tax rules every trader should know.
The IRS treats crypto as property, which means every transaction falls into one of three buckets: capital gains events, income events, or non-taxable events. This framework helps traders know when they owe tax, when they must report income, and when a simple transfer requires no tax at all. Therefore, it is very important for traders and investors to understand the crypto tax in the USA.
Here’s how crypto transactions trigger capital gains tax:
Here’s how crypto transactions trigger Income Tax:
Here are non-taxable cryptocurrency transactions:
Gains and losses from taxable dispositions are classified based on the holding period:
The IRS expects traders to keep complete and accurate records for every crypto transaction. Strong documentation helps prevent inflated gains, filing mistakes, and IRS follow-up questions.
The IRS now requires traders to track the cost basis for each wallet or account separately. Every exchange account and self-custody wallet holds its own pool of assets with its own basis. By separating each wallet’s cost basis, traders avoid mixing purchase histories that do not belong together. This rule keeps gains accurate and prevents the IRS from assuming incorrect profit amounts.
Centralised exchanges will send Form 1099-DA for 2025 activity, showing only the gross proceeds from your sales. If the IRS sees high proceeds but no basis reported, it may assume the full amount is profit. Traders must provide a basis for themselves to show true gains or losses. Unhosted wallets and DeFi platforms do not issue this form for the 2025 tax year, so traders must track activity from these sources manually.
The IRS lowered the reporting threshold to $2,500 for payments processed through third-party networks and marketplaces. Anyone receiving more than $2,500 in payments for goods, services, or certain crypto activities through these platforms will receive a Form 1099-K. Traders must track this income carefully so it matches their tax return.
Here’s how the IRS defines the Wash Sales rule for cryptocurrency:
The wash sale rule, which restricts stock traders from claiming losses when they buy back the same asset within 30 days, still does not apply to cryptocurrency for the 2025 tax year.
Crypto traders can sell an asset at a loss and buy it back immediately without breaking any IRS rules. This gives traders flexibility when harvesting losses.
While the wash sale rule does not apply, traders still follow the economic substance doctrine. If a sale and repurchase happen instantly with no market risk at all, the IRS could challenge the intent, even though this remains uncommon for retail traders.
Crypto traders rely on several IRS forms to report gains, losses, and income correctly. Each form serves a specific purpose, and using them accurately keeps filings consistent with IRS rules for the 2025 tax year.
Traders use Form 8949 to list every taxable crypto transaction, including sale dates, purchase dates, cost basis, and proceeds. This form provides the detailed breakdown that the IRS expects for each disposal.
Schedule D summarises the totals from Form 8949. Traders report their overall short-term and long-term capital gains or losses for the year on this form.
Schedule 1 reports income from non-business crypto activity, such as airdrops, forks, and hobby-level mining. Traders enter the fair market value from the day they received the income.
Schedule B is used for interest-like income, which includes staking rewards, liquidity pool payouts, and similar earnings. Traders report the value of these rewards when received.
Schedule C applies when crypto activity qualifies as a business. Traders use it to report income from operations like professional mining, trading businesses, or services paid in crypto.
The IRS has made crypto taxation clearer and stricter for 2025, and traders benefit from knowing these rules early. Understanding taxable events, preparing for Form 1099-DA, and following the wallet-by-wallet cost basis requirement help prevent filing mistakes and inflated gains. Strong records and consistent tracking give traders confidence when reporting every sale, trade, or reward. With proactive planning and organised documentation, US traders enter the 2025 tax season better equipped to file accurately and avoid unexpected issues.
Yes, it is. The IRS views trading one crypto for another as a disposal of the first asset. You must calculate a capital gain or loss on the transaction, even though you did not convert it to cash.
Yes, airdropped tokens are considered income. You must report them at their fair market value at the moment you gain control over them, which is typically when they appear in your wallet.
This new IRS requirement means you must track the purchase history and cost basis of the assets in each of your crypto wallets and exchange accounts separately. You can no longer combine the cost basis of assets held across different platforms.
No, the wash sale rule, which prevents claiming a loss on a security if you buy a similar one within 30 days, does not apply to cryptocurrency for the 2025 tax year. This allows you to sell a crypto asset at a loss and buy it back right away.
Form 1099-DA will report your gross proceeds from sales on that platform. It is your responsibility to report your cost basis for those transactions on Form 8949. Failing to do so could result in the IRS assuming your entire proceeds are profit.
