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

Last Updated on October 6, 2025 by Robert Green

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.

*See our related post: Digital Asset Trading Explained: Tax Rules for Crypto, ETFs, Futures, Options, and Tokens

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