When you file your federal tax return, the Internal Revenue Service (IRS) requires you to report certain activity involving digital assets, including cryptocurrency.
What counts as a digital asset?
The IRS says digital assets are things like cryptocurrencies or tokens that exist online and use secure technology to track ownership and transactions.
Digital assets can include:
Cryptocurrency (virtual currency), such as Bitcoin or Ethereum
Stablecoins, which are pegged to another currency
Non-fungible tokens (NFTs), such as tokenized digital art or collectibles
How does the IRS treat cryptocurrency for tax purposes?
According to the IRS, digital assets aren’t considered real currency. They aren’t coin or paper money issued by the United States or another country, and they aren’t issued by a central bank.
Because of this:
Receiving virtual currency can count as income
Trading virtual currency can result in a capital gain or loss
Virtual currency is generally taxed as property, not currency
Capital gains and losses from digital assets are typically reported on Schedule D
Why documentation matters
Not all digital asset marketplaces report information the same way. Because of this, it’s important to understand:
How your digital assets were received, and
What documentation you have available
Having complete and accurate records helps ensure your digital assets are reported correctly on your tax return.
New for the 2025 tax year: Form 1099-DA
Starting with the 2025 tax year, some taxpayers may receive Form 1099-DA, which is used to report certain digital asset transactions to both you and the IRS.
You may receive a Form 1099-DA if:
You sold, exchanged, or disposed of digital assets through a platform that reports this information, or
A broker or marketplace is required to track and report your digital asset activity
Even if you don’t receive a Form 1099-DA, you’re still responsible for reporting taxable digital asset transactions on your return. The form is meant to help track activity, not replace your own records.
What question does Form 1040 ask about digital assets?
Form 1040 includes the following question:
“At any time during 2025, did you:
(a) receive (as a reward, award, or payment for property or services); or
(b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
The IRS recommends following these steps when determining how to answer this question.
How do I know how to answer the digital asset question?
The IRS provides guidance on how to determine the correct response based on your digital asset activity during the year.
Understanding whether you received, sold, exchanged, or otherwise disposed of a digital asset is key to answering accurately.
Key takeaway
Cryptocurrency and other digital assets may need to be reported on your tax return. Because the IRS treats these assets as property, certain transactions can create taxable income or capital gains.
New reporting forms, like Form 1099-DA, may help track digital asset activity, but accurate records are still essential when answering the digital asset question on Form 1040.
This content is provided for informational purposes only and should not be construed as tax, legal, financial, accounting, or other advice. Rules and regulations vary by location and are subject to change, so please consult with an expert if you need advice specific to you.
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