Whether you're HODLing Bitcoin, staking Ethereum, or trading through the new spot ETFs—the IRS wants their cut. And in 2025, they have more tools than ever to make sure they get it.
Here's exactly how to report your BTC and ETH taxes this year.
The IRS Treats Crypto Like Property, Not Currency
This is the foundation of everything.
Bitcoin and Ethereum are not treated like dollars or euros. They're treated like stocks or real estate. That means:
→ Every sale, trade, or spend triggers a taxable event
→ Swapping BTC for ETH? Taxable.
→ Buying coffee with Bitcoin? Taxable.
→ Just holding? Not taxable (until you sell)
What's Taxable in 2025
Action | Tax Type | Form |
|---|---|---|
Selling BTC or ETH for USD | Capital Gains | 8949 + Schedule D |
Trading BTC ↔ ETH | Capital Gains | 8949 + Schedule D |
Buying goods/services with crypto | Capital Gains | 8949 + Schedule D |
ETH staking rewards | Ordinary Income | Schedule 1 |
Mining Bitcoin | Ordinary Income | Schedule 1 or Schedule C |
Getting paid in BTC/ETH | Ordinary Income | Form 1040 |
Airdrops received | Ordinary Income | Schedule 1 |
What's NOT Taxable
✅ Buying BTC or ETH with USD (and holding)
✅ Transferring between your own wallets
✅ Gifting up to $19,000 per recipient
✅ Donating to qualified charities
The Tax Rates: BTC & ETH Edition
Short-Term Gains (Held ≤ 1 Year)
Taxed as ordinary income: 10% – 37%
Long-Term Gains (Held > 1 Year)
Preferential rates: 0%, 15%, or 20%
Your Taxable Income (Single) | Long-Term Rate |
|---|---|
Up to $48,350 | 0% |
$48,351 – $533,400 | 15% |
Over $533,400 | 20% |
The takeaway: That extra month of holding could save you 17%+ in taxes. Timing matters.
Bitcoin Tax Example
Scenario: You bought 0.5 BTC for $15,000 in March 2024. You sold it for $25,000 in June 2025.
Amount | |
|---|---|
Proceeds | $25,000 |
Cost Basis | $15,000 |
Capital Gain | $10,000 |
Holding Period | 15 months (Long-term) |
If your income puts you in the 15% bracket → $1,500 tax
If you had sold 2 months earlier (short-term) at 24% bracket → $2,400 tax
You just saved $900 by waiting.
Ethereum Staking: The Income Tax Trap
Here's where ETH holders get caught off guard.
Staking rewards = Ordinary Income (taxed when received)
Per IRS Revenue Ruling 2023-14, the moment you have "dominion and control" over your staking rewards, you owe income tax on their fair market value.
Example:
You receive 0.5 ETH in staking rewards
ETH price at time of receipt: $3,000
Taxable income: $1,500 (even if you don't sell)
When you eventually sell that staked ETH, you'll also owe capital gains tax on any price increase from when you received it.
Double taxation layer:
Income tax when you receive the reward
Capital gains tax when you sell
Bitcoin & Ethereum ETFs: Different Rules
The spot Bitcoin and Ethereum ETFs that launched have their own reporting requirements.
Type | How It's Taxed | Form You'll Get |
|---|---|---|
Spot BTC/ETH ETF | Same as stocks (capital gains) | 1099-B |
Direct BTC/ETH | Same rates, different form | 1099-DA |
Futures-based ETF | 60% long-term / 40% short-term (Section 1256) | 1099-B |
Key difference: ETF transactions get reported on Form 1099-B (like stocks). Direct crypto gets reported on the new Form 1099-DA.
Pro tip: ETFs can be held in IRAs and HSAs for tax-advantaged growth. Direct crypto generally cannot.
The New Form 1099-DA: What You'll Receive
Starting with 2025 transactions, exchanges must report your crypto sales to the IRS.
What's reported in 2025: Gross proceeds only
What's reported starting 2026: Gross proceeds + cost basis
You should receive your 1099-DA by February 17, 2026.
⚠️ Warning: The IRS will match what you report against the 1099-DA. Discrepancies = audit flags.
Step-by-Step: Reporting Your BTC & ETH
Step 1: Answer the Crypto Question
Page 1 of Form 1040 asks: "Did you receive, sell, exchange, or otherwise dispose of any digital asset?"
If you did anything with crypto → Check YES
Step 2: Gather Your Records
For each transaction, you need:
Date acquired
Date sold/exchanged
Cost basis (what you paid + fees)
Proceeds (what you received)
Step 3: Calculate Gains/Losses
Gain or Loss = Proceeds − Cost Basis
Step 4: Fill Out Form 8949
List each transaction:
Part I: Short-term (held ≤ 1 year)
Part II: Long-term (held > 1 year)
Step 5: Transfer to Schedule D
Summarize your totals from Form 8949.
Step 6: Report Staking/Mining Income
Schedule 1, Line 8z for staking rewards
Schedule C if mining is a business
BTC ↔ ETH Swaps: Yes, They're Taxable
One of the most common mistakes.
Swapping Bitcoin for Ethereum is NOT a tax-free exchange.
The IRS views this as:
Selling BTC for USD (taxable event)
Using USD to buy ETH
You must calculate the gain/loss on your BTC at the time of the swap.
Example:
You bought 1 BTC for $20,000
You swap it for 10 ETH when BTC = $30,000
Taxable gain: $10,000 (even though you never touched USD)
Wallet-by-Wallet Accounting: New for 2025
Big change: The IRS now requires wallet-by-wallet cost basis tracking.
Before 2025, you could use "universal" accounting across all your holdings. Not anymore.
What this means:
Each wallet/exchange is tracked separately
If you bought BTC cheaper on Coinbase but sell from Kraken, you use Kraken's cost basis
Moving crypto between your own wallets still isn't taxable, but you need to track basis
Action item: Use crypto tax software (CoinTracker, Koinly, TokenTax) to track this automatically.
5 Tax-Saving Strategies for BTC & ETH Holders
1. Hold for 366+ Days
Long-term rates can be 0% vs. 37% for short-term. The math is obvious.
2. Tax-Loss Harvest
Sold at a loss? Use it to offset gains. Losses can offset:
All capital gains
Up to $3,000 of ordinary income
Carry forward excess to future years
3. Use Specific Identification
Choose which "lots" to sell to minimize taxes. Sell your highest-cost-basis coins first.
4. Consider ETFs in Retirement Accounts
Bitcoin and Ethereum ETFs in a Roth IRA = tax-free growth forever.
5. Time Your Exits
Realize gains in years when your income is lower (between jobs, semi-retired, etc.).
Key Deadlines
Date | What Happens |
|---|---|
Feb 17, 2026 | Receive Form 1099-DA from exchanges |
April 15, 2026 | File 2025 tax return |
Starting 2026 | Exchanges report cost basis (not just proceeds) |
The Bottom Line
Bitcoin and Ethereum are mainstream now—and so is IRS enforcement.
Your checklist:
[ ] Track every transaction (buys, sells, swaps, staking rewards)
[ ] Know your cost basis for each asset
[ ] Use crypto tax software to automate calculations
[ ] Hold for 1+ year when possible
[ ] Report everything—the IRS is watching
The rules are getting stricter, but with the right preparation, you'll stay compliant and keep more of your gains.
Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and subject to change. Please consult a qualified tax professional for advice specific to your situation.
By Ran Chen, EA, CFP®