Crypto and Digital Assets in 2026: What the Tax Rules Actually Look Like

The tax treatment of cryptocurrency has been settled law for over a decade — but misunderstanding is still the norm. Every sale, swap, and purchase is a taxable event, and with the IRS’s new Form 1099-DA now in force, the window for accidental non-compliance is closing fast. Here is what the rules actually look like in 2026.

Crypto Is Property — That Changes Everything

The foundational rule comes from IRS Notice 2014-21, issued in 2014: cryptocurrency is property for federal tax purposes — not currency. That single classification drives everything that follows.

Because crypto is property, every disposal triggers a taxable event. Your gain or loss is the difference between your proceeds and your cost basis (what you paid, including fees). Selling Bitcoin for dollars is obvious. Less obvious: swapping Bitcoin for Ethereum is two transactions — a sale of Bitcoin at that day’s market value, then a purchase of Ethereum. Paying a contractor in crypto works the same way. Dispose of a digital asset in any form, and a taxable event has occurred.

What Triggers a Taxable Event

• Selling crypto for dollars or other fiat currency — the obvious one
• Trading one cryptocurrency for another — ETH for BTC is two transactions: a sale and a purchase
• Buying goods or services with crypto — treated as a sale of crypto at that day’s fair market value
• Receiving crypto as payment for services — ordinary income at FMV on the date received
• Mining rewards — ordinary income at FMV upon receipt, per Notice 2014-21
• Staking rewards — ordinary income at FMV when received, per Rev. Rul. 2023-14 (discussed below)
• Airdrops — ordinary income at FMV on the date of receipt, if received without restriction

What Does Not Trigger a Taxable Event

• Buying and holding. Purchasing crypto with cash is not taxable — you’re acquiring property with a cost basis equal to what you paid.
• Wallet-to-wallet transfers you control. Moving crypto from Coinbase to a hardware wallet or MetaMask is not a disposition, provided you own both accounts.
• Gifting crypto. The recipient takes your basis; gift tax rules apply above the annual exclusion.
• Donating to a qualified charity. No capital gain recognized; you deduct the full fair market value.

The Holding Period Matters — A Lot

The same rules that govern stocks govern crypto. Hold more than one year and gains are taxed at long-term rates: 0%, 15%, or 20% depending on income. Hold one year or less and gains are short-term — ordinary income up to 37%. For high-income clients, the 3.8% Net Investment Income Tax (NIIT) applies above $200,000 (single) / $250,000 (MFJ). On a $500,000 gain, the spread between a 20% long-term rate and 37% short-term is $85,000 in federal tax alone.

Cost Basis Tracking: FIFO vs. Specific Identification

The IRS requires you to track every purchase. Without records, you have no documented basis — meaning the entire proceeds amount could be treated as gain.

The default method is FIFO (first in, first out): you’re deemed to sell your oldest lot first. Under specific identification, you choose exactly which lot you’re selling — selecting your highest-basis lot to minimize gain, or your lowest to harvest a loss. Revenue Procedure 2024-28 issued transitional guidance on allocating basis across wallets and accounts as of January 1, 2025. If you hold positions across multiple exchanges, this allocation matters and is worth addressing before any sale.

Form 1099-DA: The Broker Reporting Era Is Here

The Infrastructure Investment and Jobs Act of 2021 expanded broker reporting to cover digital assets. Starting with 2025 transactions, centralized exchanges — Coinbase, Kraken, Gemini, and others — must issue Form 1099-DA reporting gross proceeds directly to the IRS. Cost basis reporting follows for 2026. By the time you file your 2026 return, your exchange will have reported both proceeds and basis.

Notice 2025-33 extended penalty relief for good-faith 1099-DA efforts during 2025, but the infrastructure is live. The era of under-reporting crypto gains by accident — or on purpose — is effectively over for exchange activity.

One carve-out: Notice 2024-57 defers 1099-DA reporting for certain DeFi transactions (staking, liquidity provider activity, wrapping/unwrapping) pending further guidance. That relief does not eliminate your obligation to report the income.

The Wash Sale Gap Is Still Open — For Now

IRC §1091 bars claiming a loss if you repurchase the same or “substantially identical” security within 30 days. Cryptocurrency — property, not a security — is not covered.

This means you can sell Bitcoin at a loss on December 28, repurchase it December 29, and still claim the full loss. The OBBBA legislation signed in July 2025 did not extend the wash sale rule to digital assets. Multiple proposals to close this gap have been introduced but none have passed. Harvest losses before year-end and immediately repurchase to preserve exposure while locking in the tax benefit.

Staking Rewards: Taxable When You Receive Them

Rev. Rul. 2023-14 settled a contested question: staking rewards are ordinary income at fair market value at the moment you gain dominion and control — when the tokens are credited to you.

The ruling addressed Jarrett v. United States (M.D. Tenn. 2022), in which the IRS refunded staking-related taxes rather than litigate the taxpayer’s argument that rewards weren’t income until sold. Having avoided the courtroom, the IRS issued Rev. Rul. 2023-14 to state its position unambiguously.

Each batch of staking rewards establishes a cost basis equal to the FMV at receipt. When you later sell those tokens, you recognize capital gain or loss measured from that basis.

Mining rewards follow the same treatment: ordinary income at FMV upon receipt, per Notice 2014-21.

DeFi, NFTs, and the Unsettled Edges

DeFi: Yield farming, liquidity pool participation, and crypto lending generate taxable events under existing IRS guidance. Contributing assets to a liquidity pool may constitute a disposition; fees and interest earned are income. The specific rules in some DeFi scenarios remain unsettled, but the IRS expects reporting, and the income is taxable regardless of whether a 1099 is issued.

NFTs: IRS Notice 2023-27 (April 2023) proposed treating certain NFTs as collectibles under §408(m). The significance: long-term gains on collectibles are taxed at a maximum rate of 28%, compared to the 20% maximum that applies to other long-term capital gains. Under the proposed framework, an NFT is a collectible if its underlying asset — an artwork, gem, wine, trading card — would itself qualify. Final regulations have not been issued; Notice 2023-27 remains proposed guidance. Plan around the 28% rate for NFT gains in collectible-adjacent categories until final rules clarify.

Foreign exchanges: FinCEN’s current FBAR regulations were not written with digital assets in mind, and no finalized rule yet requires crypto on foreign exchanges to be reported on FinCEN Form 114. A proposed rule to expand FBAR coverage to foreign crypto accounts remains pending. FATCA reporting (Form 8938) may also apply depending on how positions are held. If you hold meaningful crypto on international platforms, get advice specific to your facts before assuming no reporting is required.

Year-End Planning Moves for 2026

• Harvest losses before December 31. The wash sale rule doesn’t apply to crypto — sell, repurchase immediately, and still claim the loss.
• Donate appreciated crypto directly to charity. No capital gain; full FMV deduction. One of the most tax-efficient giving strategies available.
• Hold past one year wherever your position and outlook allow. The rate differential is material.
• Use specific identification. Document your lot selection before the sale; without it, FIFO applies by default.
• Fund a Donor Advised Fund with appreciated crypto. Eliminate the embedded gain, take an immediate deduction, and grant to charity over time.

If you hold crypto, the rules require active management: documented basis, thoughtful timing, and year-end planning — not a guess at tax time. At Laléa & Black, we work with HNW individuals, founders, and entertainment clients on digital asset tax strategy, from cost basis reconstruction to year-end planning to charitable giving around appreciated positions. Contact us to discuss your situation before filing season.