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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsFor U.S. federal tax purposes, Bitcoin is generally treated as property, so selling, exchanging, or spending it can create a capital gain or loss. The basic calculation is the amount realized minus adjusted basis, reported in U.S. dollars. To support that calculation, keep records of each acquisition and disposition, the units involved, dates and times, dollar values, fees, and the lot-identification method used.
This guide covers individuals holding Bitcoin as a capital asset. State and local taxes, business or mining activity, gifts, estates, trusts, and individual tax advice may require separate analysis.
When Bitcoin creates a capital gain or loss
The IRS treats digital assets such as Bitcoin as property, and ordinary property tax principles apply. Selling Bitcoin for dollars, exchanging it for another digital asset, or using it to pay for goods or services can be a disposition that produces a gain or loss. Merely buying Bitcoin with real currency and holding it, without another transaction, generally does not trigger a “Yes” answer to the federal digital-asset disposition question. See the IRS Digital assets page.
Receiving Bitcoin can have separate tax consequences. For example, mining, staking, or receiving Bitcoin as payment may create ordinary income; the amount included as income can also affect basis for a later capital-gains calculation. Those receipt events are distinct from the capital gain or loss on a subsequent disposition.
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For a disposition, subtract the Bitcoin’s adjusted basis from the amount realized. The result is a gain if positive and a loss if negative. Calculate and report amounts in U.S. dollars.
For a sale, amount realized generally includes cash received and the fair-market value of services received in the transaction, reduced by digital-asset transaction costs allocable to the disposition. Basis generally starts with cost in U.S. dollars, but the exact amount may depend on how the Bitcoin was acquired, fees, prior income inclusion, or other facts. The IRS explains these rules in FAQs 52 and 53 on digital-asset transactions.
Account for fees correctly
Transaction costs can include commissions, transfer taxes, and transaction or “gas” fees paid for services to effect a purchase, sale, or disposition. Keep the fee amount, currency, date, and transaction it relates to so it can be accounted for correctly.
A fee for moving Bitcoin between wallets or accounts you own is not treated as a digital-asset transaction cost under the IRS FAQ. If you pay a transaction-service fee using digital assets, however, using those assets is itself a disposition and may create a gain or loss.
Use a consistent dollar value and retain its support
Record the U.S.-dollar fair-market value used for each relevant transaction, with the date and time and the supporting exchange or account record. The calculation depends on the facts of the transaction; do not assume that a platform’s summary alone establishes the correct basis or amount realized.
How the holding period affects the result
A Bitcoin capital asset held for one year or less before disposition has short-term character; one held for more than one year has long-term character. The holding period begins the day after acquisition and ends on the date of disposition. The character can affect tax treatment, but applicable rates depend on the taxpayer’s circumstances and current law. The IRS describes the holding-period rule in its digital-asset FAQs.
How to identify which Bitcoin units you disposed of
If you acquired Bitcoin at different times or prices, identifying the units disposed of can affect basis and holding period. Specific identification is not simply selecting a favorable lot after a sale. The identification procedure depends on custody, the transaction date, and whether the required records and instructions were in place.
| Approach | What must be established | Key consideration |
|---|---|---|
| Specific identification | The particular units, their basis and holding period, and supporting records. For units held with a custodial broker, identification must be made to that broker by the date and time of disposition using broker-designated identifiers. | For transactions after Dec. 31, 2025, the instruction generally needs to be in place with the broker by transaction time. The IRS FAQs describe temporary relief for 2025 under Notice 2025-7. |
| Applicable default identification rule | The wallet or account involved, custody arrangement, transaction date, and units otherwise available for the disposition. | For an unhosted wallet, IRS FAQ 86 describes a default using the earliest-acquired units of the same asset in that wallet, regardless of when units were transferred into it. This is not a universal FIFO rule for every account or custody arrangement. |
The IRS FAQs 86, 87, and 92 discuss defaults and related custodial-wallet and broker rules. Check the rules applicable to the transaction year and custody arrangement in the current IRS FAQ. Keep contemporaneous records of any specific identification and the broker instructions supporting it.
Transition guidance for basis across wallets
Revenue Procedure 2024-28 provides an eligible-taxpayer transition safe harbor for allocating unused basis to digital-asset units held in each wallet or account as of Jan. 1, 2025. It does not cover assets acquired or transferred to the taxpayer on or after that date, and its requirements and deadlines apply. It is transition guidance, not a general rule for moving basis between wallets.
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What Bitcoin tax records to keep
The IRS requires taxpayers to maintain sufficient records to establish the positions taken on federal income tax returns. For digital assets, its guidance identifies records of purchases, receipts, sales, exchanges, other dispositions, and relevant U.S.-dollar fair-market values. For a capital gain or loss calculation, retain the asset type, transaction date and time, number of units, dollar value, and basis. See the IRS digital-assets guidance and its transaction FAQs.
- Acquisitions: date and time, quantity, purchase price or other basis information, and purchase-related costs.
- Dispositions: date and time, quantity, proceeds or value received, applicable costs, and the units selected or determined under the applicable identification rule.
- Wallet and account activity: exchange statements, account histories, wallet records, and transfer details that show where units moved and whether the destination was also under your control.
- Fees and valuations: fee details and the supporting records for U.S.-dollar fair-market values used in your calculations.
- Lot-identification support: broker instructions, confirmations, identifiers, and records connecting the selected units to their basis and holding period.
Keep source records, not just a final spreadsheet or tax-software report. If you use software to reconcile transactions across exchanges and wallets, it can help organize information, but it does not replace the underlying records or tax review.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How Form 1099-DA fits into your records
Form 1099-DA reports information from covered brokers, but it does not eliminate the need to establish basis independently. Under the IRS summary of the 2024 final broker-reporting rules, gross-proceeds reporting applies to covered transactions on or after Jan. 1, 2025; basis reporting applies to certain covered transactions on or after Jan. 1, 2026. Covered brokers generally take possession of the assets, while decentralized or non-custodial brokers that do not take possession are not covered by these final regulations. Details are on the IRS Digital assets page.
For the relevant 2025 reporting cycle, the IRS said brokers had to provide taxpayers the information reported on Form 1099-DA by Feb. 17, 2026. Most such statements will not include 2025 basis, so taxpayers need their own records to calculate gain or loss. See IRS Tax Tip 2026-07, dated Jan. 28, 2026.
Reporting Bitcoin capital transactions
Individual capital transactions generally go on Form 8949 and are summarized on Form 1040, Schedule D, subject to applicable reporting rules. The IRS says Form 8949 may not be needed for a transaction when a broker has supplied a Form 1099-DA with gross proceeds and basis information under the applicable rules. Taxable transactions must still be reported even if no Form 1099-DA or other information return arrives. Check the current forms and instructions for the filing year; the IRS discusses reporting in its digital-asset FAQs and 2026 reminder.
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