Do I have to pay taxes on crypto?

Yes. The IRS treats cryptocurrency as property. Selling, trading, or spending crypto triggers a taxable event. Earning crypto through mining or staking is taxed as ordinary income when received.

How is crypto mining taxed?

Mining income is taxed as ordinary income at the fair market value when you receive the coins, plus 15.3% self-employment tax if you mine as a business. If you later sell the mined coins for more, that additional gain is a separate capital gains event.

Does the wash sale rule apply to crypto?

As of early 2026, the wash sale rule technically applies to 'stock or securities' and crypto is classified as property. However, legislation to close this gap is pending. See our wash sale rule guide for more details.

investing Audience: general 3 min read

Crypto Tax 101: Mining, Staking, and Trading Explained

Crypto isn't invisible to the IRS. Understand the different tax treatments for mining income, staking rewards, and trading gains.

Last updated on February 18, 2026

The IRS has a simple question on the 1040: “At any time during the year, did you receive, sell, exchange, or otherwise dispose of a digital asset?” Lying is perjury. Answering “Yes” opens the door.

Crypto is taxed in two very different ways depending on how you earned it.

Key Takeaways

Trading (Buy Low, Sell High) = Capital Gains Tax.
Earning (Mining, Staking, Interest) = Ordinary Income Tax.
Spending Crypto (buying a pizza) = A Taxable Sale of the crypto.
Lost keys or 'rug pulls' are generally NOT deductible as theft losses anymore (since TCJA).

Type 1: Property (Capital Gains)

When you hold Bitcoin like a stock:

You bought 1 BTC for $10k.
You sold 1 BTC for $50k.
Gain: $40k. Taxed at capital gains rates (0%, 15%, or 20% depending on your income and holding period).

Short-term crypto capital gains (held less than one year) are taxed at ordinary income rates---up to 37%. Long-term gains (held over one year) get the preferential rates. The holding period matters enormously.

Type 2: Income (Ordinary)

When you work for crypto or your crypto works for you:

Mining: You used electricity to solve a block. You earned 0.1 BTC worth $4k.
- Tax: You owe Ordinary Income tax on $4k PLUS self-employment tax (15.3%).
Staking: Your SOL earned 5% APY. The rewards are taxed as income the moment they hit your wallet.

The Wash Sale Question for Crypto

Unlike stocks, crypto is classified as property, not a security. The wash sale rule under IRC Section 1091 technically applies to “stock or securities.” This has led some crypto investors to aggressively harvest losses---selling a coin at a loss and immediately rebuying. However, legislation to formally extend wash sale rules to digital assets is pending. Do not assume this loophole will last.

The Tracking Nightmare

If you stake ETH, earn rewards (Income), then sell the rewards later (Capital Gain), you have two tax events. Spreadsheets break. You need crypto tax software (CoinTracker, Koinly) to establish your cost basis.

FIFO vs HIFO: Most crypto investors default to FIFO (First In, First Out) for cost basis. But HIFO (Highest In, First Out) can minimize your taxable gain by selling your most expensive lots first. Your crypto tax software should let you choose. Just be consistent.

Tax Loss Harvesting with Crypto

When certain coins are down, you can sell to realize losses and offset gains elsewhere in your portfolio. This is the same tax loss harvesting strategy used with stocks, but potentially with fewer restrictions (for now) given the wash sale ambiguity. For a step-by-step walkthrough, see the tax loss harvesting guide. Up to $3,000 of net capital losses can offset ordinary income each year, with the rest carrying forward.

Don’t ignore the crypto question. The blockchain is public, and the IRS has the tools to read it.

How sharper.tax Helps

sharper.tax analyzes your uploaded return to identify crypto-related income and capital gains reported on your Schedule D and Form 8949. We help you understand your total crypto tax exposure and flag optimization opportunities like unrealized losses. Sophisticated tax planning used to require a high-end CPA --- we make it available for free.

Sources

The information above is educational and not tax advice.