Category: Digital Assets

Digital Asset Tax Accounting

August 14, 2025 | By: Robert A. Green, CPA

Accurate accounting for digital assets is critical for U.S. tax compliance and effective financial strategy. This post covers taxable events, basis and gain/loss calculations, accounting methods, wash sale rules, and key considerations.

Taxable Events for Digital Assets
Taxable income, gains, or losses can result from:

Selling for fiat currency (e.g., Bitcoin for U.S. dollars)
Exchanging for property, goods, or services (e.g., buying a car with Bitcoin)
Swapping one digital asset for another (e.g., Bitcoin for Ether)
Receiving digital assets as payment (e.g., selling consulting services for Bitcoin)
Acquiring new assets through hard forks (e.g., Bitcoin Cash). Note: a hard fork alone, without an airdrop, does not trigger income recognition.
Earning through mining or staking (e.g., staking rewards for proof-of-stake; mining coins for proof-of-work)
Receiving assets via an airdrop (e.g., distribution of free tokens)
Any other disposal of a digital asset interest.

Because virtual currency is considered property under IRS rules, gains or losses must be recognized whenever it is exchanged for goods or services. Income recognition occurs when the taxpayer has dominion and control over the cryptocurrency.

Determining Basis
The basis of purchased or exchanged digital assets is generally the amount paid or the FMV of property received, plus any allocable transaction costs. Assets received for services have a basis equal to the FMV of those services.

Amount Realized
Under Reg. 1.1001-7, the amount realized includes cash received, FMV of property or debt instruments received, and FMV of services received, less allocable transaction costs. Using digital assets to pay these costs is an additional taxable disposition. FMV is measured at the date and time of the exchange or disposition.

Digital Asset Transaction Costs
Transaction costs—fees, transfer taxes, commissions, and similar amounts—add to the basis when acquiring an asset and reduce the amount realized upon disposition. For asset-for-asset trades, all costs are allocated to the disposed asset.

Accounting Method
Specific identification is allowed if you can substantiate the basis of units sold. Identification can be made using unique digital identifiers or detailed transaction records showing acquisition and disposition dates, basis, FMV, and proceeds. FIFO (first-in, first-out) and LIFO (last-in, first-out) are also acceptable if applied consistently. Changing an accounting method typically requires consent from the IRS via Form 3115.

Wash Sale Losses
Digital assets are generally not subject to wash sale rules because they are treated as property rather than securities. However, tokenized securities, other dual-classification assets meeting the definition of a security, and Bitcoin Futures ETFs structured as Registered Investment Companies (RICs) are subject to wash sale rules.

Like-Kind Exchanges (Pre-2018)
IRS Legal Memorandum 202124008 concluded that bitcoin, ether, and litecoin are not like-kind property under IRC Sec. 1031. After 2017, like-kind exchange rules apply only to real property. Our firm warned against using like-kind exchanges for crypto—and we were correct.

Nonfungible Tokens (NFTs)
NFTs, representing items like collectibles, art, or in-game assets, are generally taxed as property, with gains or losses recognized at sale or exchange. Some NFTs may be subject to the 28% collectibles rate. Active trading by professional traders is rare, but tracking basis, holding period, and applicable rates is essential.

No Loss Deduction for Cryptocurrency’s Substantial Decline in Value
Cryptocurrencies do not qualify as securities under IRC Sec. 165(g)(2), so the capital loss deduction for worthless securities does not apply. In IRS CCA 202302011, the IRS addressed this issue for cryptocurrencies by denying capital losses arising from a substantial decline in value.

In short, a holder generally needs either a sale/exchange/spend or a clearly documented abandonment action that permanently surrenders the asset with no value received, to have an affirmative disposition supporting a crypto loss.

IRS Resources
The IRS provides a dedicated Digital Assets page with reporting guidance and FAQs. Visit www.irs.gov and search for “digital assets.”

Using Software for Compliance
Tax-compliant accounting software for U.S. taxes can help traders and investors download transactions from all wallets, exchanges, and other intermediaries, ensuring complete and accurate reporting. I will cover this in more detail in our upcoming post on Digital Asset Tax Accounting Software.

Conclusion
Proper U.S. tax compliance requires selecting an IRS-compliant accounting method, using software that can download and reconcile digital asset transactions, and maintaining accurate records. Covering taxable events, basis determination, gain/loss computation, accounting methods, wash sale rules, and loss limitations is essential to avoiding costly tax issues and ensuring accurate reporting.

See related sections below:

Digital Asset Tax Accounting Software Solutions
Comparing Digital Asset Tax Accounting Software Solutions
Practical Tips for Importing Digital Asset Transactions
Best Practices for Digital Asset Data Reconciliation and Audit Preparation
Digital Asset Audit Readiness: Preparing Before the IRS Knocks

Digital Asset Tax Accounting Software Solutions

Accurate digital asset accounting demands reliable, U.S. tax-compliant tools. This post outlines essential software features for U.S. taxpayers, explains why compliance is substantial, and demonstrates how the right platform can simplify tax reporting.

Why Software Matters
Digital asset traders and investors frequently transact across multiple wallets, exchanges, and decentralized finance (DeFi) platforms. Manually tracking each purchase, sale, swap, and staking reward is tedious and prone to error. The right accounting software automates transaction imports, calculates gains/losses, and ensures compliance with IRS rules.

Key Features to Look For

U.S. tax compliance: Accurately applies IRS rules on gains/losses, taxable events, and reporting.
Automatic transaction downloads: Connect to all wallets, exchanges (centralized and decentralized), and intermediaries.
Multiple accounting methods: Support for FIFO, LIFO, and specific identification.
Complex transaction handling: Correctly process staking rewards, mining income, airdrops, NFTs, and hard fork distributions.
Wash sale rule logic: Apply or exclude wash sale rules as appropriate (e.g., tokenized securities vs. standard crypto).
IRS-ready reports: Generate Form 8949, Schedule D, and other required forms.

Integrating Software into Your Workflow
Choose a platform that consolidates all your transactions, reconciles records, and produces precise exportable reports for your CPA or filing software. Automatic transaction downloads help ensure every income event and gain/loss is captured.

Looking Ahead
Our next post will review top digital asset tax accounting software for U.S. taxpayers, including side-by-side comparisons of features, costs, and compliance capabilities.

Conclusion
U.S. tax-compliant accounting software protects against costly mistakes, reduces IRS audit risks, and streamlines reporting—freeing traders and investors to focus on strategy while staying compliant.

Comparing Digital Asset Tax Accounting Software Solutions

Selecting a U.S. tax-compliant digital asset accounting platform is essential for accurate reporting and minimizing audit risk. This post compares leading vendors on features, compliance, and suitability for U.S. taxpayers.

Why Software Choice Matters
Tracking trades across multiple wallets, exchanges, and DeFi platforms manually is impractical. The right software automates imports, accurately applies IRS rules, and produces Form 8949 and Schedule D-ready reports.

Evaluation Criteria

U.S. tax compliance: Aligns with IRS rules for gains, losses, and taxable events.
Transaction import: Connects to centralized and decentralized exchanges, wallets, and intermediaries.
Accounting methods: Supports FIFO, LIFO, and specific identification (IRS approval needed for changes).
Transaction coverage: Handles staking, mining, airdrops, NFTs, and hard forks.
Wash sale rules: Distinguishes tokenized securities from other digital assets.
Reporting: Generates accurate, IRS-ready forms.

Vendor Comparison Table

Vendor	U.S. Tax Compliance	Integration Coverage	Accounting Methods	Specialty Features	Best For
CoinTracking	Yes	Wide (CEX, DEX, wallets)	FIFO, LIFO, Specific ID	Detailed analytics, custom reports	High-volume traders
Koinly	Yes	Extensive, easy setup	FIFO, LIFO, Specific ID	Simple UX, competitive pricing	Casual traders
CoinLedger	Yes	Good CEX & wallet coverage	FIFO, LIFO, Specific ID	Fast imports, U.S.-focused	U.S. compliance-focused users
TokenTax	Yes	Wide integrations, manual support	FIFO, LIFO, Specific ID	CPA review, advanced features	Complex portfolios
ZenLedger	Yes	Strong DeFi support	FIFO, LIFO, Specific ID	NFT tracking, IRS audit help	DeFi/NFT traders

Recommendations
Casual traders may prefer Koinly or CoinLedger. High-volume or complex DeFi users might opt for CoinTracking or TokenTax. Choose a solution that supports your transaction types and integrates with all your platforms.

Conclusion
The correct tax software simplifies compliance and reduces errors. In our next post, we’ll provide practical tips for importing transactions from all wallets and intermediaries—ensuring complete records before tax season.

Practical Tips for Importing Digital Asset Transactions
Ensuring Complete Records Before Tax Season

Introduction

Accurate digital asset tax reporting starts with complete transaction records. Whether you’re a casual investor or a high-volume trader, importing data from every wallet, exchange, and intermediary is essential for avoiding errors, omissions, and IRS scrutiny.

Why Comprehensive Imports Matter

Many traders use multiple centralized exchanges (CEXs), decentralized exchanges (DEXs), wallets, and DeFi platforms. Missing even a single transaction can throw off cost basis calculations, misstate gains or losses, and lead to discrepancies between your return and any 1099 forms the IRS receives.

Step 1: Inventory All Sources

List every platform where you’ve held or transacted digital assets:

Centralized exchanges (e.g., Coinbase, Kraken)
Decentralized exchanges (e.g., Uniswap, SushiSwap)
Custodial and non-custodial wallets
DeFi protocols, yield farms, and staking platforms
NFT marketplaces
On-chain transfers between your own wallets

Step 2: Use API and CSV Imports

Whenever possible, connect via API to ensure automatic, recurring imports. If APIs aren’t available, download and save CSV files for all transactions. Keep backups—many platforms limit historical downloads.

Step 3: Match Transfers and Avoid Duplicates

Transfers between your own wallets or exchanges shouldn’t be treated as taxable events. Good software should recognize these and prevent double-counting. Manual review may still be required for accuracy.

Step 4: Reconcile With Blockchain Data

Some wallets or exchanges may omit small transactions or older history. Cross-check with blockchain explorers (e.g., Etherscan, Blockchain.com) to ensure no activity is missed.

Step 5: Include All Transaction Types

Import more than just buys and sells:

Staking and mining rewards
Airdrops
Hard fork distributions
NFT mints and sales
Token swaps on DEXs

Step 6: Keep Year-Round Records

Don’t wait until tax season. Download or sync transactions regularly to reduce the risk of missing or inaccessible data.

Software Advantage

Modern tax accounting software automates imports, matches transfers, and applies IRS rules—saving hours of manual work. The right solution ensures that all taxable events are captured and classified correctly.

Conclusion

Comprehensive transaction imports are the backbone of accurate digital asset tax accounting. Our next step is to look at best practices for data reconciliation and audit preparation—ensuring you can substantiate every number on your tax return.

Best Practices for Digital Asset Data Reconciliation and Audit Preparation

Introduction

Once you’ve imported all your digital asset transactions into tax accounting software, the next step is ensuring the data is accurate, complete, and ready to stand up to IRS scrutiny. Proper reconciliation and organized records not only make tax filing smoother—they are critical for defending your return in the event of an audit.

1. Reconcile Against All Sources

Compare software-imported data to original exchange CSVs, wallet histories, and broker statements.
Verify transaction counts and totals match across all sources.
Pay special attention to missing or duplicate transactions from decentralized exchanges or manually entered trades.

2. Track Adjustments and Corrections

Maintain a log of any edits made to imported data, noting the reason and source documents.
Avoid overwriting raw imports—keep a clean, original file for reference.

3. Preserve Supporting Documents

Store PDF or CSV copies of exchange and wallet histories for every tax year.
Save staking reward logs, airdrop announcements, and transaction receipts in a secure, organized folder system.

4. Align with IRS Requirements

Ensure basis and amount realized are correctly computed per IRS rules.
Keep documentation showing how you applied FIFO, LIFO, or specific identification (including private/public key records when needed).

Conclusion

Meticulous reconciliation and documentation are your best defense against costly IRS adjustments. In our next post, we’ll explore digital asset audit readiness, including what the IRS looks for and how to prepare before they knock on your door.

Digital Asset Audit Readiness: Preparing Before the IRS Knocks

Introduction

With the IRS increasing its focus on digital assets, audit readiness is no longer optional—it’s a must. Whether you trade Bitcoin, NFTs, DeFi tokens, or all of the above, being able to substantiate every figure on your return is the foundation of a strong defense.

1. Understand What the IRS Looks For

Transaction completeness – The IRS will expect that all taxable events have been reported, from trades to staking rewards to airdrops.
Matching totals – Gains, losses, and income on your return should match what’s shown in your supporting records.
Proper valuation – Fair market value must be determined consistently using reliable sources.

2. Maintain Evidence of Every Trade

Keep raw CSV exports from every wallet, exchange, and broker—don’t just rely on your tax software output.
Save blockchain transaction hashes and screenshots for key transactions, especially large ones.
Store staking logs, airdrop announcements, and records of hard forks (e.g., Bitcoin Cash split from Bitcoin).

3. Document Your Accounting Method

If using FIFO, LIFO, or specific identification, keep written confirmation of your chosen method and the basis for changes.
For specific identification, maintain detailed acquisition and sale records per IRS FAQ A40.

4. Organize Records Year-by-Year

Create a dedicated folder for each tax year containing raw data, reconciled reports, and a copy of your filed return.
Include notes explaining any unusual transactions or one-time events—your future self will thank you.

5. Use Technology to Your Advantage

Choose U.S. tax-compliant software that supports audit-friendly exports and immutable data logs.
Some platforms offer audit assistance or CPA review—worth considering if you have complex transactions.

Conclusion

Audit readiness starts long before you get a notice from the IRS. With complete, well-organized, and verifiable records, you can respond quickly and confidently, reducing both stress and risk. In our next post, we’ll cover real-world IRS digital asset audit scenarios and the strategies that worked for taxpayers.

Digital Asset Audit Scenarios: How the IRS Is Targeting Crypto

Introduction

With digital asset oversight ramping up, understanding real-world IRS actions offers critical insights. From warning letters to full criminal investigations, taxpayers need to know what triggers audits and how the IRS is leveraging blockchain data to enforce compliance.

1. Blockchain Analytics in Enforcement

The IRS has significantly boosted enforcement through digital asset casework. From 2018–2023, Criminal Investigation handled 390 virtual currency cases—with 224 resulting in prosecution. Blockchain analytics tools helped trace illicit activity, proving highly effective in investigations.

Virtual Currency Tax Compliance Enforcement Can Be Improved

2. Surge in Warning Letters

Recently, taxpayers have seen a dramatic increase in IRS warning letters (Letters 6174 and 6174‑A)—up 750% over two months—alerting them to potential discrepancies between their returns and emerging Form 1099‑DA data.

3. Operation Hidden Treasure & Blockchain Tracing

The IRS’s Operation Hidden Treasure seeks crypto underreporting. Using tools from analytics firms like Chainalysis, the IRS can now trace transactions across blockchains—even linking wallet addresses to real individuals.

4. Focus on Complex Portfolios & High-Net-Worth Taxpayers

New audit teams and AI-driven methods target returns with digital assets, especially for high-income individuals and complex partnership structures. Returns combining crypto holdings with business deductions are now common audit targets.

5. Audit Triggers & Case Outcomes

IRS audits of crypto often stem from mismatches between income reported and exchange data reported via Form 1099‑DA. Cases have involved large unreported gains and tax miscalculations—leading to significant penalties when accurate records weren’t maintained.

Moreover, any discrepancy, even from routine trades being miscategorized, can trigger civil audits or deeper review.

Summary Table

Audit Trigger	IRS Mechanism	Real-World Impact
Warning letters (Letters 6174, 6174-A)	Form 1099-DA cross-checking	Taxpayers urged to amend reporting
Blockchain tracking	Analytics tools & John Doe summons	Identifies unreported activity
High complexity & high net worth	AI-powered audit selection	Increased audit rates for wealthy portfolios
Mismatched transaction reporting	Form 1099-DA vs. taxpayer filings	Triggered full IRS examinations

Bottom Line

The IRS is no longer passive on crypto enforcement. From aggressive data analytics to proactive audits of digital asset portfolios, the message is clear: accurate records and thorough reporting are essential.

How Taxpayers Successfully Navigated Crypto Audit Challenges

Introduction

IRS scrutiny of digital asset transactions is intensifying, but audits are survivable—if you understand the rules, maintain meticulous records, and respond strategically. Here’s how taxpayers have turned potential disasters into manageable outcomes.

1. Proactive Recordkeeping Pays Off

Taxpayers who kept complete transaction histories—downloaded from exchanges, wallets, and DeFi platforms—were able to substantiate cost basis and holding periods.

Key practice: Export transactions regularly in CSV or API format to avoid losing access when platforms shut down or change data retention policies.
Result: Provided auditors with a clear, reconciled ledger, shortening the audit timeline.

2. Matching IRS Data with Your Records

In multiple cases, the IRS audit began with discrepancies between Form 1099-K/1099-DA data and the taxpayer’s return.

Solution: Taxpayers reconciled every transaction in IRS records against their own logs, identifying where transfers between wallets had been mistakenly treated as taxable sales.
Outcome: Adjusted the IRS’s working papers, reducing or eliminating proposed tax due.

3. Demonstrating Non-Taxable Events

Some taxpayers faced assessments for events the IRS initially classified as taxable—such as wallet-to-wallet transfers or hard forks without airdrops.

Defense: Citing IRS Rev. Rul. 2019-24, they showed that no income is recognized until dominion and control is established.
Impact: Removed substantial amounts from proposed taxable income.

4. Leveraging Professional Representation

In several high-value cases, tax professionals—especially those versed in digital asset law—helped frame responses, submit organized exhibits, and negotiate with revenue agents.

Advantage: Reduced penalties through reasonable cause arguments, and in some cases, secured “no change” audit results.

5. Using Forensic Tools to Fill Gaps

Where transaction data was incomplete, specialized blockchain forensics tools reconstructed histories using public ledger data.

Outcome: Taxpayers could prove their reported gains were correct, even when exchange records were no longer available.

Conclusion

Success in a crypto audit comes down to preparation and precision. Keep every transaction documented, understand IRS classifications of taxable events, and don’t hesitate to get expert help when the stakes are high.

Digital Asset Trading Explained: Tax Rules For Crypto, ETFs, Futures, Options, And Tokens

August 11, 2025 | By: Robert A. Green, CPA | Read it on

Update — October 6, 2025: Senate Finance Committee Hearing (October 1)

Lawmakers and industry witnesses told the Senate Finance Committee that U.S. tax rules for digital assets remain unclear and burdensome. Members cited the need for practical guidance beyond the status quo (crypto as “property”), even as recent steps like the GENIUS Act’s limited exemption for certain stablecoin payment transactions from gain/loss reporting were noted as progress.

De minimis exemption proposal. Several witnesses urged Congress to create a small-transaction safe harbor (similar to the foreign-currency rule) so routine purchases (e.g., coffee, transit) wouldn’t trigger gain/loss reporting. Others warned that any relief should be tightly scoped (by amount and/or frequency) to prevent abuse and avoid new tracking headaches.

Staking and mining. Policy groups argued block rewards should be taxed only upon disposition (sale/exchange), analogizing to self-created property. Other experts defended the current approach: rewards are ordinary income when the taxpayer has dominion and control, with a separate capital gain/loss on later disposal. The Committee highlighted the need for consistent treatment across domestic and offshore providers.

What this means now. No immediate change to filing obligations. Crypto remains property for federal tax purposes; the GENIUS Act’s stablecoin payment relief is narrow. Keep robust records, monitor proposed legislation on de minimis relief and reward timing, and watch for IRS/Treasury guidance that could refine reporting under Form 1099-DA.

Original Post August 11, 2025:

Digital assets can be traded in multiple forms, each with distinct tax treatment, regulatory oversight, and strategic considerations. Here’s a detailed breakdown:

Spot Cryptocurrency – Direct ownership of coins like Bitcoin (BTC) or Ethereum (ETH), purchased via exchanges or wallets, taxed as property under IRS Notice 2014-21. Capital gains/losses are realized upon sale or exchange. Not subject to wash sale rules, enabling immediate repurchase for tax-loss harvesting. The Section 475 MTM election is not available, even for trader tax status (TTS), as Section 475 only applies to securities and/or commodities (futures).
Bitcoin & Crypto Futures (CME) – CME Bitcoin (BTC) and Ether (ETH) futures are regulated, cash-settled futures contracts (RFCs) traded on a U.S. Qualified Board or Exchange (CME Group). They settle in cash, not the actual digital asset. Qualify for Section 1256 tax treatment — 60% long-term / 40% short-term capital gains, MTM annually on Form 6781 — and are exempt from wash sale rules. Example: $100,000 of gains on futures taxed at a 26.8% (top 60/40 blended tax rate) vs. 37% (top ordinary tax rate) results in a savings of $10,200 (10.2%).
Bitcoin & Crypto Options on Futures (CME) – Options on CME-listed Bitcoin/Ether futures (including Micro BTC and Micro ETH) qualify for Section 1256 as non-equity options listed on a QBE: 60/40 capital gains, MTM annually, no wash sale rules. Only options traded on a QBE in the U.S., like the CME, qualify for Section 1256 treatment. Options traded on offshore platforms or non-regulated exchanges do not.
Bitcoin Futures ETFs (e.g., BITO) – Structured as Regulated Investment Companies (RICs), these ETFs invest primarily in CME Bitcoin futures. Investors hold ETF RIC shares (securities) rather than direct futures positions. The ETF itself marks to market under Section 1256, resulting in a 60/40 gain split at the fund level. The investor benefits from the lower 60/40 tax treatment in the 1099-DIV’s allocation of short-term and long-term capital gains. The investor doesn’t file Form 6781 on these RIC shares.

Bitcoin futures ETFs, structured as RICs (e.g., BITO), are securities for tax purposes and, therefore, are subject to wash sale loss rules, which can disallow losses when repurchased within 30 days. While the underlying CME Bitcoin futures are regulated futures contracts on a QBE, the ETF RIC “wrapper” changes the classification to RIC, a security.
Spot Bitcoin ETFs (e.g., IBIT, FBTC) – Structured as exchange-traded grantor trusts, it’s a look-through vehicle. The underlying asset is considered property, so capital gains/losses are realized upon sale, with no wash sale rule or application of Section 475.

SPDR Gold Shares (GLD) is also an exchange-traded grantor trust. This means that when you own shares in these exchange-traded grantor trusts, you hold a direct, proportionate interest in the underlying asset—either bitcoin or physical gold—held in custody by the trust. Tax-wise, it’s similar to buying and selling spot Bitcoin (property) or physical gold (a collectible) directly.
Tokenized Assets – Are digital representations of real-world assets (such as stocks, bonds, real estate, or commodities) issued and tracked on a blockchain. The legal and tax treatment of these assets depends on whether they qualify as regulated securities under U.S. law.

SEC-registered tokenized securities are subject to wash sale rules (or Section 475 for TTS traders only). In contrast, unregulated tokens are treated as property and not subject to wash sale rules or Section 475. The 2025 Form 1099-DA includes guidance on tokenized securities and wash sale tracking.
Stablecoins – Pegged to fiat currencies, taxed as property. The GENIUS Act enforces reserve and transparency rules without changing tax classification.

Update October 6, 2025: While stablecoins are currently taxed like property (similar to other cryptocurrencies), the GENIUS Act introduces a potential—but not yet definitive—twist. The Act defines “payment stablecoins” issued by authorized entities, mandates 1:1 reserves, and exempts them from being classified as securities or commodities. Some tax commentary interprets this as allowing certain stablecoin payments to be exempt from gain or loss reporting, but that interpretation is not yet confirmed in IRS guidance or Treasury regulations. Until such guidance is issued, the default tax treatment still applies: selling or exchanging stablecoins is a taxable disposition, and spending them for goods or services generally triggers gain or loss just like other crypto transactions.
Staking, Mining, Airdrops, Hard Forks – Staking earns rewards for validating proof-of-stake; mining earns coins for proof-of-work; airdrops distribute free tokens; hard forks create new coins. Ordinary income at FMV when received and when the taxpayer has dominion and control. Later sales produce capital gains and losses.
Crypto Lending & Interest – Lending via DeFi or centralized platforms generates ordinary income when received; repayment in crypto may result in capital gains or losses if the value changes.

Summary Table

Type	Example(s)	Structure	Tax Treatment	Wash Sale Rules	Section 1256 Eligible
Spot Cryptocurrency	BTC, ETH	Direct ownership	Property – cap gains/losses	No	No
Bitcoin/Crypto Futures	CME BTC, CME ETH	Regulated futures on QBE	60/40, MTM, Form 6781	No	Yes
Bitcoin Futures ETFs	BITO	RIC investing in CME futures	Fund-level 60/40 / 1099-DIV	Yes (security)	Indirect only
Spot Bitcoin ETFs	IBIT, FBTC	Grantor trust	Property – gains/losses	No	No
Tokenized Assets	Tokenized stocks, bonds	Depends on regulation	Securities: wash sale; Property: capital gains/losses	Varies	Varies
CME Options	CME BTC/ETH options	Non-equity options on QBE	60/40, MTM, Form 6781	No	Yes
Stablecoins	USDC, USDT	Pegged to Fiat	Property – gains/losses	No	No

Compliance Highlights:

Broker Reporting (Form 1099-DA): IRS/Treasury finalized digital-asset broker rules in mid- and late-2024. Brokers must report gross proceeds for 2025 transactions on the 2026 Forms and the cost basis for 2026 transactions on the 2027 Forms. These rules apply to custodial platforms, specific hosted wallets, kiosks, and PDAPs; non-custodial broker rules will be addressed separately.
Section 6050I $10K Receipt Reporting: Implementation delayed.
Tax Return Question: Required on Forms 1040 and 1120-S. Whether they received (as a reward, award, or payment for property or services), or sold, exchanged, or otherwise disposed of a digital asset (or a financial interest in a digital asset).
Worthless/Abandonment Losses: Must have a sale or abandonment for deduction.

Bottom Line: Digital asset trading encompasses spot crypto, futures, options on futures, ETF RICs, ETF grantor trusts, tokenized assets, stablecoins, and income-generating activities such as staking or lending. While most digital assets remain property for tax purposes, CME-traded futures and options on those futures qualify for Section 1256 benefits. Bitcoin futures ETFs structured as RICs are securities subject to wash sales, despite holding 1256 contracts internally, which allows investors to receive the 60/40 tax benefit indirectly. The new Form 1099-DA and potential legislation could significantly impact future tax compliance and reporting.

White House Update (July 30, 2025) – The Administration outlined priorities, including IRS guidance on wrapping/unwrapping transactions, de minimis exemptions, and streamlined broker consent for Form 1099-DAs. Congressional recommendations include treating digital assets as a new asset class, classifying payment stablecoins as debt, applying wash sale rules to most cryptocurrencies, and requiring the reporting of foreign digital asset accounts. Full report: whitehouse.gov/crypto.

Crypto Still Taxed as Property Despite the GENIUS Act and CLARITY Bill

July 24, 2025 | By: Robert A. Green, CPA | Read it on

With the July 2025 enactment of the GENIUS Act and the House’s passage of the CLARITY Bill (pending in the Senate), the U.S. crypto regulatory framework is undergoing rapid evolution. Yet for traders and investors, one central question remains: Has the IRS changed how crypto is taxed?

Short answer: Not generally. The IRS continues to treat most cryptocurrencies and digital assets as “intangible property”—not as currency, securities, or commodities—unless specifically structured otherwise (e.g., Bitcoin futures are treated as Section 1256). Even if the SEC classifies a crypto asset as a security for regulatory purposes, the IRS does not automatically follow suit. (See the discussion of tokenized securities and commodities below, where there is some uncertainty.)

For tax purposes, the IRS maintains its stance, as outlined in Notice 2014-21 and subsequent updates: cryptocurrencies are treated as property unless they clearly fall into another tax category under specific provisions of the Internal Revenue Code. For a digital asset to be taxed as a security, it typically needs to resemble traditional equity instruments—such as corporate stock or bonds. Most cryptocurrencies do not meet these criteria. This divergence between regulatory and tax treatment is critical.

Wash Sale Rules and Securities Treatment
If the IRS were to treat cryptocurrencies as securities, it would trigger wash sale loss (WSL) rules under Section 1091, which disallow a loss on a sale if the same or a substantially identical asset is repurchased within 30 days. WSLs are typically deferred to a replacement position in the same tax year; however, year-end WSLs can be deferred to the subsequent tax year, potentially increasing tax liability. WSLs are permanently lost if incurred in a taxable account and repurchased in an IRA. Tracking these losses would be burdensome for crypto traders and exchanges. Intangible property does not trigger WSLs.

Trader Tax Status and Section 475
Traders eligible for trader tax status (TTS) in securities may elect Section 475 mark-to-market (MTM) accounting, which converts capital gains and losses into ordinary income or loss. A 475 election avoids wash sale rules and the $3,000 capital loss limitation. Additionally, Section 475 income may qualify for the 20% qualified business income (QBI) deduction if income thresholds are met. However, Section 475 only applies to securities and commodities, not to property. A trader in cryptocurrencies can still benefit from TTS, which allows tax deductions for business expenses. Investors cannot deduct investment expenses.

New Form 1099-DA for 2025
The IRS will require brokers to issue Form 1099-DA for digital asset transactions starting in 2025, with gross proceeds reporting in 2025 and cost basis reporting in 2026. This new form adds enforcement pressure—but does not change the IRS’s treatment of crypto as property.

Key Tax Takeaways for Crypto Traders

Crypto remains taxed as property under capital gains rules.
Crypto is not subject to wash sale rules under Section 1091.
Section 475 MTM and the QBI deduction do not apply to crypto.
Long-term holders benefit from tax deferral and reduced rates.

What to Watch For

The IRS maintains that crypto is property, regardless of SEC or CFTC classification.
GENIUS Act enhances reporting for stablecoin issuers—no tax effect.
The CLARITY Bill (pending Senate review) would regulate based on decentralization—still no tax impact.
Congress previously considered, but did not pass, applying WSL rules to crypto.

Commodity Futures and Digital Asset Contracts
Traders often use Bitcoin futures and select digital asset contracts that qualify as regulated futures contracts (RFCs). For example, Bitcoin futures traded on CME Group are taxed under Section 1256.

To qualify as a commodity futures contract for tax purposes, a digital asset must:

Be a regulated futures contract (RFC)
Trade on a qualified board or exchange (QBE)
Be under CFTC oversight

Structure and oversight—not just tracking a commodity—determine tax treatment. Tokenized commodities like digital grain contracts generally trade on non-regulated platforms and are taxed as property.

Section 1256 tax benefits:

60% long-term / 40% short-term capital gains split
Annual mark-to-market on Form 6781
Exemption from wash sale rules

Compared to spot crypto, Section 1256 contracts offer lower effective tax rates and simpler year-end reporting.

Bitcoin ETFs: Taxed as Property, Not Securities
Spot Bitcoin ETFs, such as iShares Bitcoin Trust (Ticker: IBIT, NASDAQ) and Fidelity Wise Origin Bitcoin Fund (Ticker: FBTC, CBOE BZX Exchange), are structured as grantor trusts. Investors are treated as direct owners of the underlying Bitcoin.

Tax treatment:

Treated as property (like direct Bitcoin holdings)
Subject to capital gains/losses upon sale
Not subject to wash sale rules
Not eligible for Section 475 or QBI deduction

This reinforces the broader IRS position: digital assets remain property for tax purposes.

IRS Form 1099-DA and Tokenized Securities
Beginning January 1, 2025, brokers—including exchanges and hosted wallet providers—must issue Form 1099‑DA: Digital Asset Proceeds From Broker Transactions. Finalized in early 2025, the form includes gross proceeds in 2025 and cost basis reporting in 2026.

Box 1i addresses wash sale loss disallowed, although WSL rules currently do not apply to most crypto. If the asset is a tokenized security that meets the definition of a “security” under Section 1091, then wash sale losses may be disallowed.

The IRS instructions clarify that tokenized securities—digital assets registered with the SEC and representing traditional stocks, bonds, or fund shares—must be reported on Form 1099-DA (not 1099-B) with a CUSIP. Examples include security tokens under Regulation D, tokenized equities like INX, and blockchain-based REIT or bond tokens. Most cryptocurrencies and stablecoins remain exempt.

GENIUS Act: Stablecoin Oversight, Not a Tax Shift
The GENIUS Act mandates 1:1 reserve backing, monthly disclosures, executive certifications, and GAAP audits for stablecoin issuers exceeding $50 billion in market cap.

Tax impact: None. The IRS continues to treat all crypto—including stablecoins—as property.

Update October 6, 2025: Some interpretations of the GENIUS Act suggest that certain “qualified payment stablecoin” transactions may be exempt from gain or loss reporting when used for everyday purchases. However, until the IRS and Treasury issue formal guidance, stablecoins remain taxable property under current rules—meaning gains or losses are recognized upon sale, exchange, or use in payment for goods or services.

CLARITY Bill: Regulatory Designations, Not Tax Reclassifications (Pending Senate Review)
The CLARITY Bill, passed by the House, is pending Senate review. It assigns oversight based on functionality and decentralization.

Asset Type	Regulatory Status	Overseen By
Centralized tokens / ICOs	Security	SEC
Decentralized tokens	Commodity	CFTC
Transitional assets	Evolving	SEC or CFTC

Tax impact: No immediate change. The IRS’s property classification remains.

Bottom Line
Crypto remains intangible property for tax purposes, even under new and pending legislation. This means:

No wash sale rules
No Section 475 mark-to-market election
No QBI deduction

Disclaimer: This post is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for guidance tailored to your situation.

Contributors: Darren Neuschwander, CPA, and Adam Manning, CPA

Sources:

IRS Notice 2014-21 and subsequent IRS crypto guidance
GENIUS Act (S.1582), signed into law July 18, 2025
CLARITY Bill (H.R.3633), passed House July 17, 2025 (pending Senate review)
IRS 2025 Form 1099-DA Instructions
Checkpoint News, Consumer Reports, Financial Times, and agency press releases

Update Policy Outlook: White House Report Signals Potential Crypto Tax Shifts

As reported by Thomson Reuters/PPC on August 4, the White House released a report outlining its top priorities for digital asset taxation. While no new laws or IRS guidance have been finalized, the report signals the direction of future crypto tax policy. Key recommendations include:

IRS/Treasury Guidance Priorities:
- Clarify whether wrapping/unwrapping digital assets (e.g., wrapping ETH into WETH) are taxable events.
- Update the IRS’s Frequently Asked Questions on digital assets.
- Provide administrative relief for de minimis digital asset receipts, possibly exempting small crypto rewards or payments from tax reporting.
- Ease broker compliance by proposing simplified electronic consent procedures for furnishing Form 1099-DA payee statements.
Legislative Recommendations to Congress:
- Create a new tax classification for digital assets, with modified rules derived from existing securities and commodities tax law.
- Treat payment stablecoins as debt instruments, which could shift their tax treatment significantly.
- Apply wash sale rules to digital assets (excluding payment stablecoins), ending a major tax benefit for crypto traders.
- Require taxpayers to report foreign digital asset accounts, similar to FBAR rules for bank accounts.

While these proposals are not yet law, they reflect a growing push to integrate digital assets more deeply into the formal tax code. If enacted, they could significantly alter how traders and investors manage crypto tax planning.

👉 Full report available at: whitehouse.gov/crypto