Think stablecoins are just digital dollars that don't need tax reporting? Think again.
USDT, USDC, DAI — they may be pegged to $1, but the IRS treats them exactly like Bitcoin and Ethereum: as property, not currency. That means almost every move you make with stablecoins can trigger a taxable event.
Here's everything you need to know for 2025.
The Uncomfortable Truth About Stablecoins
Stablecoins ≠ Dollars (at least for tax purposes)
The IRS doesn't care that USDC is "basically a dollar." In their eyes:
→ Swapping BTC for USDC? Taxable.
→ Swapping USDC for USDT? Taxable.
→ Buying coffee with USDC? Taxable.
→ Converting USDC back to USD? Taxable.
Yes, even that last one — converting your stablecoin back to actual dollars — is technically a taxable event.
What Makes Stablecoins Taxable?
Action | Taxable? | Tax Type |
|---|---|---|
Buying USDC/USDT with USD | ❌ No | — |
Holding stablecoins | ❌ No | — |
Transferring between your own wallets | ❌ No | — |
Selling stablecoins for USD | ✅ Yes | Capital Gains |
Swapping USDC ↔ USDT | ✅ Yes | Capital Gains |
Trading crypto → stablecoin | ✅ Yes | Capital Gains |
Using stablecoins to buy goods | ✅ Yes | Capital Gains |
Receiving stablecoins as payment | ✅ Yes | Ordinary Income |
Earning stablecoin interest/yield | ✅ Yes | Ordinary Income |
The Micro-Gains Problem
Here's where stablecoins get annoying.
Because stablecoins are designed to stay at $1, your gains and losses are often fractions of a cent. But guess what? The IRS still wants to know about them.
Example:
You bought 10,000 USDC for $10,000.
Later, you sell it for $10,012.75 (due to minor price fluctuations and fees).
Your capital gain: $12.75
Is that worth reporting? Doesn't matter — you have to report it anyway.
There's no de minimis exemption for small crypto transactions. A $0.13 gain? Reportable. A $0.02 loss? Reportable.
The $10,000 Reporting Threshold (Don't Be Fooled)
You may have heard: "Exchanges don't report stablecoin transactions under $10,000."
This is true — but misleading.
Here's what it actually means:
Threshold | What It Affects |
|---|---|
Under $10,000/year in stablecoin sales | Exchanges don't have to report to IRS |
Over $10,000/year in stablecoin sales | Exchanges report aggregate totals to IRS |
Critical point: This threshold affects what the exchange reports — not what you must report.
You're required to report all stablecoin transactions on your tax return, even if they total $50.
Stablecoin-to-Stablecoin Swaps: Yes, They're Taxable
This catches a lot of people off guard.
Swapping USDC for USDT = Taxable Event
Even though both are supposed to be worth $1, the IRS treats this as:
Selling USDC (disposal)
Buying USDT (new acquisition)
Example:
USDC is trading at $0.9999
USDT is trading at $1.0001
You swap 10,000 USDC for USDT
Technically, you have a $2 loss that must be reported.
Absurd? Yes. Required? Also yes.
Trading Crypto for Stablecoins: The Real Tax Hit
This is where stablecoins create significant tax liability.
When you convert Bitcoin or Ethereum to a stablecoin, you're realizing your gains on that crypto — even though you haven't cashed out to actual dollars.
Example:
You bought 1 BTC for $20,000
BTC rises to $50,000
You swap it for 50,000 USDC
Your taxable capital gain: $30,000
Many traders use stablecoins as a "safe haven" during volatility, not realizing they just triggered a massive tax bill.
Earning Stablecoins = Ordinary Income
If you receive stablecoins as:
Payment for work/services
Interest from lending (DeFi, CeFi)
Staking rewards
Referral bonuses
Promotional rewards
That's ordinary income, taxed at 10% – 37% depending on your bracket.
Example:
A client pays you 500 USDC for freelance work.
→ Report $500 as ordinary income
→ Your cost basis for that USDC is now $500
→ If you later sell it for $505, you have a $5 capital gain
How to Calculate Stablecoin Gains & Losses
Formula:
Capital Gain/Loss = Proceeds − Cost Basis
Example 1: Selling USDC for USD
Amount | |
|---|---|
Bought 5,000 USDC | $5,000.00 |
Sold 5,000 USDC | $5,003.50 |
Capital Gain | $3.50 |
Example 2: Swapping ETH for USDC
Amount | |
|---|---|
Original ETH cost basis | $2,000 |
ETH value at swap (received 3,500 USDC) | $3,500 |
Capital Gain | $1,500 |
The Forms You Need
For Capital Gains/Losses:
Form 8949 — List each stablecoin transaction
Part I: Short-term (held ≤ 1 year)
Part II: Long-term (held > 1 year)
Schedule D — Summary of all capital gains/losses
For Stablecoin Income:
Schedule 1 (Line 8z) — "Other Income" for interest, rewards, etc.
Schedule C — If stablecoin income is from self-employment/business
Form 1099-DA: What You'll Receive
Starting with 2025 transactions, exchanges must report stablecoin activity to the IRS.
What exchanges report:
Your Activity | Exchange Reports? |
|---|---|
Stablecoin sales under $10,000/year | ❌ Not required |
Stablecoin sales over $10,000/year | ✅ Aggregate totals |
Each individual transaction | ❌ Not itemized |
Key dates:
You'll receive 1099-DA by February 17, 2026
Starting 2026, exchanges report cost basis too
⚠️ Remember: Even if you don't receive a 1099-DA, you must still report all transactions.
USDC vs. USDT vs. DAI: Any Tax Difference?
Short answer: No.
The IRS doesn't distinguish between stablecoin issuers. Whether you're using:
USDC (Circle)
USDT (Tether)
DAI (MakerDAO)
BUSD (Binance USD)
TUSD, FRAX, etc.
They're all taxed identically as property.
The only thing that matters is:
Your cost basis when you acquired it
Your proceeds when you disposed of it
Step-by-Step: Reporting Your Stablecoin Taxes
Step 1: Gather All Records
For each stablecoin transaction, you need:
Date acquired
Date sold/exchanged
Amount of stablecoins
Cost basis (what you paid)
Proceeds (what you received)
Step 2: Calculate Gains/Losses
Even for tiny amounts:
Gain/Loss = Proceeds − Cost Basis
Step 3: Categorize by Holding Period
Short-term: Held ≤ 1 year → Ordinary income tax rates (10-37%)
Long-term: Held > 1 year → Preferential rates (0%, 15%, or 20%)
Step 4: Complete Form 8949
List each transaction. Yes, even the $0.50 gains.
Step 5: Transfer to Schedule D
Summarize your Form 8949 totals.
Step 6: Report Any Stablecoin Income
Interest, rewards, payments → Schedule 1, Line 8z
5 Common Stablecoin Tax Mistakes
❌ Mistake 1: "Stablecoins aren't taxable because they don't change in value"
Reality: They're property. Every disposal is potentially taxable.
❌ Mistake 2: "Swapping USDC for USDT isn't a taxable event"
Reality: It absolutely is. Different assets = taxable swap.
❌ Mistake 3: "Under $10,000 means I don't have to report"
Reality: That threshold only affects exchange reporting, not your tax obligations.
❌ Mistake 4: "Converting to stablecoins lets me avoid taxes"
Reality: You're realizing gains on whatever crypto you sold to get the stablecoin.
❌ Mistake 5: "The gains are so small, the IRS won't care"
Reality: There's no minimum threshold. Report everything.
Can Stablecoins Ever Work in Your Favor?
Actually, yes.
De-Pegging Events = Potential Losses
Remember when USDC briefly dropped to $0.87 during the Silicon Valley Bank crisis in 2023? Or TerraUST's collapse?
If you sold stablecoins during a de-peg for less than you paid:
→ You can claim a capital loss
→ Losses offset gains
→ Excess losses offset up to $3,000 of ordinary income
→ Remaining losses carry forward
Tax-Loss Harvesting with Stablecoins
If you're holding a stablecoin at a slight loss (even $0.01 per coin), selling and rebuying can generate deductible losses.
The Future: Proposed Legislation
Congress is aware that taxing stablecoins like property creates absurd situations (like reporting $0.03 gains on coffee purchases).
Bills under consideration:
Clarity for Payment Stablecoins Act — Could reclassify payment stablecoins
Various proposals to create de minimis exemptions
Until something passes, current rules apply. Don't assume future changes will retroactively help you.
Key Deadlines for 2025
Date | What Happens |
|---|---|
December 31, 2025 | End of 2025 tax year |
February 17, 2026 | Receive Form 1099-DA (if applicable) |
April 15, 2026 | File 2025 tax return |
Starting 2026 | Exchanges report cost basis |
The Bottom Line
Stablecoins may be "stable" in price — but they're not stable when it comes to tax complexity.
Your action plan:
[ ] Track every stablecoin transaction (even tiny ones)
[ ] Don't assume swapping to stablecoins avoids taxes
[ ] Use crypto tax software to automate micro-gain calculations
[ ] Report everything — the $10,000 threshold doesn't protect you
[ ] Keep records for 7 years minimum
The IRS is building infrastructure to track stablecoin activity like never before. Stay ahead of it.
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®