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For U.S. federal income tax, Bitcoin is generally treated as property, not currency. Selling, exchanging, or spending it can create a capital gain or loss, calculated from the amount realized minus the Bitcoin’s adjusted basis. To report it correctly, you need records showing when and how you acquired the units, what they cost, what happened at disposition, and how you identified the units used.
This guide covers individuals holding Bitcoin as a capital asset. State and local taxes, business or mining activity, gifts, estates, and other special circumstances may require different analysis. Merely buying Bitcoin with U.S. dollars and holding it without a transaction generally does not itself require a “Yes” answer to the IRS digital-asset disposition question.
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When a Bitcoin transaction creates a capital gain or loss
A sale, exchange, or other disposition of Bitcoin held as a capital asset can produce a capital gain or loss. The core calculation is:
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For a sale for U.S. dollars, amount realized generally starts with the cash received. The IRS also accounts for the fair market value of services received to effect a sale and reduces amount realized by digital-asset transaction costs allocable to the disposition. The calculation is made in U.S. dollars. See the IRS FAQs on digital asset transactions, including FAQs 52 and 53.
Basis and transaction costs
Basis generally begins with what you paid for the Bitcoin in U.S. dollars, but the correct adjusted basis can depend on how you acquired it, fees, whether the Bitcoin was previously included in income, and other facts. Keep enough documentation to explain the basis you report rather than assuming every acquisition has the same treatment.
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Costs to effect a purchase, sale, or disposition may include commissions, transfer taxes, and transaction or “gas” fees paid for services that facilitate that transaction. A fee paid to transfer Bitcoin between wallets or accounts you own is treated differently: the IRS does not treat that fee as a digital-asset transaction cost under FAQ 53. If you pay a transaction-service fee using Bitcoin, that use of Bitcoin is itself a disposition and may create a gain or loss.
Transfers, spending, and receipts
A transfer between wallets or accounts you control is not automatically a sale. Keep the transfer details so you can trace the units and distinguish an own-account transfer from a taxable disposition. Spending Bitcoin to buy goods or services, or exchanging it for another digital asset, can be a disposition. Mining, payment, or other receipt events may involve ordinary income and are outside this capital-gains-focused guide; the value included in income can affect later basis.
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How the Bitcoin holding period affects tax character
For a capital-asset digital asset, the IRS treats a holding period of one year or less before sale or exchange as short-term and a period of more than one year as long-term. The holding period begins the day after acquisition and ends on the disposition date. The applicable tax rate depends on your overall circumstances and current law, so this guide does not assign a rate. The IRS explains the holding-period rule in its digital-asset FAQs.
How to identify which Bitcoin units you disposed of
If you acquired Bitcoin at different prices or times, the units selected for a disposition can affect the basis and holding period used in the calculation. Specific identification is not simply choosing a favorable purchase lot after the sale: it has timing, procedure, and recordkeeping requirements. The applicable default can differ according to custody, wallet, and tax year.
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| Approach | What must be true | If requirements are not met |
|---|---|---|
| Specific identification | For units held with a custodial broker, identify the particular units to the broker no later than the date and time of disposition, using broker-designated identifiers sufficient to establish basis and holding period. Keep supporting records and follow the rules applicable to the transaction date. | A selection made only after the transaction, or one that lacks the required broker procedure or substantiation, may not qualify. |
| Applicable default identification | Use the default rule that applies to the relevant transaction, custody arrangement, and tax year when valid specific identification is absent. | 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 wallet. |
For custodial broker transactions after Dec. 31, 2025, the IRS FAQs generally require the identification instruction to be in place with the broker by the transaction time. The FAQs describe temporary relief for 2025 transactions under Notice 2025-7. Rules for custodial wallets and brokers are addressed in IRS FAQs 87 and 92, so check the current FAQ for the specific arrangement and transaction date before relying on a method.
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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 apply to assets acquired or transferred to the taxpayer on or after that date, and its requirements and deadlines matter. It is transition guidance, not a general rule for moving basis between wallets. See Revenue Procedure 2024-28.
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What Bitcoin tax records to keep
The IRS says taxpayers must retain records sufficient to establish the positions on their federal income tax returns. Its Digital assets guidance and FAQs identify information needed to calculate gain or loss. Keep records for each relevant acquisition, receipt, transfer, and disposition, including:
- Asset type and the number of Bitcoin units involved.
- Acquisition and disposition dates and times.
- U.S.-dollar fair market value at the relevant event, with the method or source used to determine it.
- Initial and adjusted basis, including documentation for acquisition costs or income inclusion that affected basis.
- Cash, services, or other value received on disposition, plus fees and transaction costs and how they were treated.
- Wallet or account identifiers and transfer details that connect units across your own wallets and accounts.
- Evidence that supports any specific identification, including the broker instruction and the records used to establish basis and holding period.
In practice, preserve the underlying exchange statements, wallet and account histories, transfer details, fee information, and records supporting your lot selection. A spreadsheet or tax-calculation program can help reconcile activity, but it does not replace source records or tax review.
How Form 1099-DA affects Bitcoin reporting
Form 1099-DA is broker information reporting, not a substitute for your own basis records. Under the IRS’s summary of the 2024 final broker reporting rules, gross-proceeds reporting applies to covered broker transactions on or after Jan. 1, 2025; basis reporting applies to certain covered transactions on or after Jan. 1, 2026. Most 2025 statements will not include basis, so taxpayers generally need their own acquisition records to calculate gain or loss. Covered brokers generally take possession of the digital assets; decentralized or non-custodial brokers that do not take possession are not covered by these final regulations. See the IRS Digital assets page.
In Tax Tip 2026-07, dated Jan. 28, 2026, the IRS said brokers must provide taxpayers the information reported on Form 1099-DA by Feb. 17, 2026, for the applicable 2025 reporting cycle. A missing form does not make a taxable transaction nonreportable.
How to report Bitcoin capital transactions
- Reconcile your records. Match acquisitions, receipts, own-wallet transfers, fees, and dispositions across exchanges and wallets; resolve missing dates, amounts, or dollar values.
- Determine the units used. Apply valid specific identification if its timing, broker procedure, and substantiation requirements are met; otherwise determine the default rule applicable to that account or wallet and tax year.
- Calculate each disposition. Determine the adjusted basis and amount realized in U.S. dollars, accounting for transaction costs under the IRS rules, and classify the gain or loss as short- or long-term based on the holding period.
- Complete the applicable forms. Individual capital transactions generally are reported on Form 8949 and summarized on Form 1040, Schedule D, subject to applicable broker reporting rules. Consult the current instructions for the filing year.
The IRS says taxable transactions must be reported even if no Form 1099-DA or other information return arrives. The IRS reminder for taxpayers about digital assets also directs taxpayers to the applicable forms and reporting rules. For individualized questions—especially where basis is incomplete, assets moved among wallets, or specific identification is uncertain—consider consulting a qualified tax professional.
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