Cryptocurrency has become a mainstream investment in the United States, but many investors still find the tax rules confusing. The IRS treats digital assets differently depending on how they are used and how long they have been held.
This guide explains how crypto earnings are taxed in the US in 2025. It covers capital gains, income from staking and mining, tax rates, and the steps required to report your transactions correctly. If you are looking for a more detailed walkthrough on general crypto taxation, you can also check our comprehensive US crypto tax guide.
KEY TAKEAWAYS about Crypto Earnings in the US
- The IRS treats cryptocurrency as property for tax purposes.
- Capital gains tax applies on disposals of crypto.
- Income tax applies on crypto earnings.
- The tax rate depends on the holding period and the total annual income.
- All taxable events must be reported on your annual tax return.
How are crypto earnings taxed in the US?
The IRS has classified cryptocurrency as property. This means that crypto transactions can be taxed in two main ways: through capital gains tax or through income tax.
Capital gains tax in the US
Capital gains tax applies when you dispose of digital assets, and the IRS distinguishes between short-term gains (for assets held one year or less) and long-term gains (for assets held more than one year). Disposals include:
- Selling crypto for fiat currency (USD or another currency)
- Trading one cryptocurrency for another
- Spending crypto to buy goods or services
Example: Short-term capital gain
Explanation: You purchased 1 ETH for $1,500 and sold it four months later for $2,000. The difference of $500 is a short-term capital gain, because the holding period was less than one year. Short-term gains are taxed at your ordinary income tax rate.
Example: Long-term capital gain
Explanation: You bought 0.5 BTC for $20,000 and sold it more than three years later for $35,000. The profit of $15,000 is a long-term capital gain, since the holding period exceeded one year. Long-term gains benefit from lower, preferential tax rates compared to short-term gains.
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Income tax in the US
Income tax applies whenever you receive cryptocurrency as a form of earnings. This includes:
- Crypto Mining rewards
- Crypto Staking rewards
- Crypto Airdrops
- Payment for goods or services in crypto
- Selling NFTs
Example: Staking rewards as income
Explanation: Each staking reward is taxed separately as ordinary income at the fair market value on the day it is received. The total taxable income from these three rewards is $2,800 ($1,000 + $1,500 + $300). If you later sell the Bitcoin, any gain or loss compared to the value at the time of receipt will be taxed as a capital gain or loss.
Tax Rates on Crypto Earnings in the US
The tax rate you pay on crypto earnings depends on whether they are classified as capital gains or income. Here is a quick overview:
Short‑term Capital Gains
If you sell or dispose of crypto after holding it for less than one year, the profit is taxed as a short-term capital gain. These gains are taxed at your ordinary income tax rates, which range from 10% to 37% in 2025 depending on your total taxable income.
2025 Federal Income Tax Brackets (Single Filers)
2025 Federal Income Tax Brackets (Filing Jointly)
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Long‑term Capital Gains
If you hold crypto for more than one year before selling, the profit qualifies for lower, long-term capital gains tax rates.
2025 Long-Term Capital Gains Rates
Combined Example: Short-Term + Long-Term + Income
This example shows how crypto earnings are layered into your overall tax picture. Short-term gains and income increase your regular taxable income, while long-term gains are taxed separately at preferential rates:
- Total taxable income = $62,000
- Ordinary income + short-term gain = $52,000. This portion is taxed progressively at 10%, 12%, and 22%.
- Long-term gain = $10,000. This portion is taxed separately at 15%.
Using Losses to Reduce Your Taxes
Not all trades result in a gain. If you sell crypto at a loss, you can use that loss to reduce your taxable gains. This strategy is known as tax loss harvesting.
- Losses first offset gains of the same type (short-term against short-term, long-term against long-term).
- If total losses exceed total gains, up to $3,000 of net capital losses can be used to reduce ordinary income each year.
- Any remaining losses can be carried forward to future tax years.
For a detailed walkthrough and advanced strategies, check our full guide on Crypto Tax Loss Harvesting.
Example of offsetting gains and losses
Explanation: The $1,200 BTC loss offsets part of the $1,500 ETH gain. The net result is only $300 taxable short-term gain instead of $1,500. This shows how tax loss harvesting can significantly lower your taxable amount in case of realized losses.
Tip: Tax loss harvesting can be a smart way to lower taxable gains. Since the rules can get complex when dealing with multiple assets and categories, using expert help can make a difference. With CoinTracking Full-Service, tax professionals can review your account, apply tax loss harvesting strategies correctly, and ensure your IRS forms are accurate.
What Counts as a Taxable Crypto Event?
Not every crypto transaction creates a taxable event. The IRS only requires reporting when there is a disposal of cryptocurrency or when you earn crypto as income.
Common taxable crypto events
- Selling cryptocurrency or NFTs for US dollars or another fiat currency
- Trading one cryptocurrency for another
- Spending cryptocurrency to purchase goods or services
- Receiving cryptocurrency as payment for work or services
- Receiving airdrops
- Receiving cryptocurrencies from hard forks
- Rewards from Mining and DeFi activities
- Lending interest
Non-taxable crypto events
- Buying digital assets with US dollars and holding them
- Transferring crypto between your own wallets or exchanges
- Donating crypto to a qualified charity (may even qualify for a deduction)
- Gifting crypto below the annual gift exclusion of $19,000
Example of a taxable vs. non-taxable action
How to Report Crypto Taxes in the US?
Reporting crypto taxes in the United States usually involves three IRS forms:
- Form 1040: The main tax return where all totals flow together.
- Form 8949: Used to report crypto disposals.
- Schedule D: Summarizes total capital gains and losses.
- Schedule 1 or Schedule C: Used to report crypto income, depending on how it was earned.
Form 1040: Answering the IRS Crypto Question
On the front page of Form 1040, all taxpayers must answer the digital assets question. You must answer Yes if you disposed of or earned crypto during the year. Simply buying and holding or transferring between your own wallets does not require a “Yes.” For detailed instructions, see the official IRS Form 1040 Instructions.
After completing Form 8949, Schedule D, and Schedule 1/C, the totals are carried over to Form 1040, your main tax return form.
Form 8949 + Schedule D: Reporting Crypto Disposals
Every crypto disposal must be reported on Form 8949. The form is divided into:
- Part I (Short-Term) – For crypto held 1 year or less before disposal.
- Part II (Long-Term) – For crypto held more than 1 year before disposal.
For detailed instructions, see the official IRS Form 8949 Instructions.
Totals from Form 8949 are carried over to Schedule D (Form 1040), which summarizes:
- Net short-term gains or losses (from Part I)
- Net long-term gains or losses (from Part II)
- Overall net capital gain or loss for the year
For detailed instructions, see the official IRS Schedule D Instructions.
Schedule 1 & Schedule C: Reporting Crypto Income
Crypto received as earnings must be declared as ordinary income:
- Schedule 1 – if the income is not from running a business.
- Schedule C – if the income is part of business or self-employment.
For detailed instructions, see the official IRS Schedule 1 Instructions and the IRS Schedule C Instructions.
Missed Reporting? Penalties & What to Expect
Failing to report crypto transactions can lead to penalties and interest. The IRS treats digital assets seriously, and since exchanges often issue reports, unreported activity can be detected.
Possible consequences of not reporting
- Late filing penalty: If you do not file your tax return on time.
- Late payment penalty: If you owe tax and do not pay it by the deadline.
- Accuracy-related penalties: Up to 20% of the underpaid tax if the IRS determines you were negligent or substantially understated your taxes.
- Interest charges: Interest accrues on any unpaid taxes until the balance is paid.
- Severe cases: Willful tax evasion involving crypto could result in criminal charges.
Conclusion: How Crypto Earnings Are Taxed in the US
Crypto is taxed in the US either as capital gains or as income. The exact tax rate depends on whether your gains are short-term or long-term, and whether the crypto was earned as income. Accurate record-keeping is essential to stay compliant with IRS rules.
To make reporting easier and avoid mistakes, many investors trust in crypto tax software. With CoinTracking, you can automatically generate IRS-ready reports, including Form 8949 and summaries for Schedule D and Form 1040.
Disclaimer
The information provided in this article is for educational and informational purposes only. It is not intended as financial, investment, tax, or legal advice. Cryptocurrency investments are highly volatile and carry significant risks. Before investing in cryptocurrencies, conduct thorough research, consult with a financial advisor, and ensure you understand the risks involved. The author and publisher are not responsible for any financial losses or damages that may occur from following the information presented in this article. Always use caution and make informed decisions when dealing with cryptocurrencies.
