How the IRS Treats Crypto
The IRS classifies virtual currency as property, not currency. That means general capital gains rules apply when you dispose of crypto. Income events—mining rewards, staking, airdrops, payment for services—may be taxed as ordinary income at fair market value when received.
Common Taxable Events
- Selling crypto for USD (or any fiat)
- Trading one coin for another (e.g., BTC → ETH)
- Using crypto to buy goods or services
- Receiving crypto as payment, mining, staking, or airdrop income
FIFO, LIFO & Average Cost
When you sell part of a position bought at different prices, you must match the sale to purchase lots:
FIFO (First In, First Out)
Uses your oldest purchases first. Often increases gain in rising markets.
LIFO (Last In, First Out)
Uses newest purchases first. Can change gain/loss versus FIFO.
Average Cost
Blends remaining purchase prices. Simpler but not always allowed for all assets.
Holding period (short vs long term) still matters for rate selection once gain is calculated.
Records to Keep
- Exchange CSV exports and trade history
- On-chain wallet transaction logs with USD values at time of trade
- Transfer records between wallets and exchanges
- Documentation for forks, airdrops, and staking rewards
How to Estimate Gains & Losses
Enter buys and sells into our crypto tax calculator and choose FIFO, LIFO, or average cost. The tool totals proceeds, cost basis, gains, and losses—it does not apply tax rates. For a single sale estimate, use the capital gains calculator.