One yes-or-no box, signed under penalty of perjury, that most people answer without reading.
Right under your name, Form 1040 asks whether you received a digital asset as a reward, award or payment, or sold, exchanged or otherwise disposed of one during the year. Everyone answers it. For most of our clients the honest answer is no. For the ones who own crypto, it is yes more often than they expect, and what follows is a set of capital gain and income rules that are simple to state and tedious to apply.
Current as of October 2026 · Figures are for tax year 2026
The question is about what you did, not what you own.
A digital asset is anything of value recorded on a blockchain: Bitcoin, Ether and other cryptocurrencies, stablecoins, and NFTs. The question doesn’t ask whether you hold any. It asks whether, during the year, one came in as income or went out in a transaction.
| Answer yes if you | Answer no if you only |
|---|---|
| Sold crypto for dollars | Bought crypto with dollars and held it |
| Traded one coin for another, including into or out of a stablecoin | Moved crypto between wallets or accounts you own |
| Paid for anything with crypto, from a coffee to a car | Held crypto in a brokerage or retirement account that did no trading |
| Sold, minted for sale, or traded an NFT | Bought an NFT with dollars and kept it |
| Received crypto as pay, as a staking or mining reward, from an airdrop or hard fork, or as a gift that you then sold | Received crypto as a gift and still hold it |
A “yes” costs nothing by itself; it means there is a transaction on the return to go with it, usually on Form 8949. A “no” from someone who traded is the problem, because the IRS increasingly knows otherwise.
We don’t take the box at face value. If a Form 1099-DA arrives, or last year’s return had an 8949 full of coin tickers, we ask. More than once the answer has been “oh, I just swapped some into a stablecoin when the market dropped.” That swap is a sale. It gets reported, and it often produces a useful loss nobody knew they had.
It is not currency, so it is taxed like stock, or a house, or a painting.
Each time you dispose of a digital asset, you compute a gain or loss: what you received, minus what you paid for it, including fees. The result goes on Form 8949 and flows to Schedule D, where stock sales go. Held more than a year, the gain is long-term and taxed at the favorable rates; a year or less, it is short-term and taxed like wages.
“Dispose of” is broader than “sell for dollars.” Trading Bitcoin for Ether is a sale of Bitcoin at its value that moment, followed by a purchase of Ether. Converting to a stablecoin is a sale. Paying for dinner with crypto is a sale of the crypto for the price of the dinner, and if the coin went up since you bought it, you have a gain on your meal. An active trader can have hundreds of these in a year, each with its own date, basis and holding period.
| Rate | Single | Married filing jointly |
|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 |
| 15% | $49,450–$545,500 | $98,900–$613,700 |
| 20% | Above $545,500 | Above $613,700 |
Short-term gains are taxed at ordinary rates. Net investment income tax of 3.8% applies above $200,000 of modified AGI single or $250,000 joint. Losses offset gains, and up to $3,000 of net loss a year offsets other income, with the rest carried forward. Capital gains explained.
When crypto comes to you without your buying it, it is income first and property second.
Ordinary income at the dollar value on the day you gain control of the coins. That value becomes your basis, so when you later sell, only the change from there is a gain or loss. Mining run as a business goes on Schedule C with self-employment tax.
Free coins that appear in your wallet are income at their value when you can actually use them, even if you never asked for them. If they arrive worthless, there is little to report.
Wages paid in crypto are wages at the dollar value when paid, and belong on a W-2. Payment to a contractor is self-employment income at the same value. Either way, you then own property with a basis equal to what you reported.
For years the IRS relied on the honor system. Now it gets a form.
Custodial exchanges and brokers such as Coinbase now report what you sold and for how much, and the IRS matches it against your return the way it matches stock sales. A return showing no crypto sales when the exchange reported some will draw a notice.
The catch: for 2025 the form shows the sale price only. If you don’t supply the cost basis, the IRS’s starting assumption is that the whole sale price was gain.
Brokers add basis to the form for assets bought in 2026 or later. Coins bought before that, or moved onto the exchange from a private wallet, still show up with no basis, and your own records fill the gap. Trades on decentralized exchanges and from self-custody wallets produce no form at all and are reportable just the same.
Since the start of 2025, basis must be tracked account by account rather than as one pool across everything you own. Selling from exchange A uses the basis of the coins held at exchange A, not the cheapest lot you own anywhere.
Without the purchase record, the gain is the whole sale.
For every lot you acquire, keep the date, amount, dollar value, how you got it, and fees. For every disposal, the date, what you received, and its dollar value. Exchanges export this as a spreadsheet; download it every year, because exchanges close, change hands, and purge old data. For wallets you control, the blockchain has the transactions but not the dollar values, so save them as you go.
Anyone with more than a handful of trades should use crypto tax software that imports from the exchanges and wallets and produces a Form 8949. We work from those reports, and we read them critically: a transfer between your own wallets that the software labeled a sale, or a missing basis it recorded as zero, can turn a modest year into an expensive one on paper.
NFTs follow the same rules. Buying one with crypto is a sale of the crypto; selling it is a sale of the NFT. An NFT that represents art or a collectible may be taxed as a collectible, at a long-term rate of up to 28%. Creators who mint and sell their own work have ordinary business income.
It can be reconstructed, and it is far better to do it before the IRS does it for you with a basis of zero. Call 303-734-1040.
Nothing separate to compute.
Colorado starts from federal taxable income and taxes it at a flat 4.40%, with no separate treatment for digital assets. Crypto gains are taxed as ordinary income at that rate, and losses that offset gains federally offset them for Colorado. There is no state digital asset question. One footnote: Colorado has accepted cryptocurrency for state tax payments since 2022, through a processor that converts it to dollars. Paying that way is itself a disposal of the crypto, with its own gain or loss, so most people pay in dollars.
No. Buying with dollars and holding is not a reportable event, and nothing goes on the return until you sell, trade or spend it.
No. A transfer between accounts you own is not a disposal. Keep a record of it so the exchange’s report, which shows the coins leaving, isn’t mistaken for a sale.
Yes, if you actually sold or traded. Realized losses offset gains, and up to $3,000 a year of what’s left offsets other income. Coins that fell in value and are still held are not a loss yet.
Amend. A voluntary amended return is treated far better than one the IRS corrects on its own, and if the trades lost money the amendment may produce a refund. Catching up.
We prepare returns with a handful of trades and with thousands, and we’ll tell you plainly what has to be reported. In person in Lone Tree or remotely, year round.
This page is general information, current as of October 2026, and is not advice about your situation. Tax law changes every year. Confirm anything that matters to you with us or at the sources below.