Lesson 4 — The US framework: IRS, 1099-DA, Form 8949

**Crypto is property.** Per IRS Notice 2014-21, virtual currency is treated as property for federal tax purposes. This means general property-tax principles apply: dispositions trigger capital gain or loss; income receipt is ordinary income at fair market value. The 'foreign currency' treatment that some users hope for does not apply.

**The reporting forms.** Capital gains and losses from crypto disposals are reported on **Form 8949** (Sales and Other Dispositions of Capital Assets), then totaled on **Schedule D**. Each disposal is generally a separate line (or batched into 'covered' and 'non-covered' transactions). Ordinary income from staking, mining, airdrops, and similar is reported on **Schedule 1** (line for 'Other Income') or on Schedule C if it rises to the level of a trade or business. The Form 1040 itself has a yes/no virtual-currency question at the top — answering No when crypto activity occurred is the most common audit-trigger for crypto users.

**Holding period and tax rates.** Assets held for more than one year before disposal qualify for **long-term capital-gains rates** (0%, 15%, or 20% depending on your overall taxable income). Held one year or less = **short-term capital gains** taxed at ordinary income rates (10–37%). Holding period starts the day *after* acquisition and includes the day of disposal. Strategy implication: short-term gains are penalised by potentially much higher rates; deliberately holding past the one-year mark before disposal often makes material tax difference.

**The 1099-DA finalised rule (effective 2025).** Starting 2025, US-based crypto brokers are required to issue Form 1099-DA to customers reporting gross proceeds, and starting 2026 they will additionally report cost basis. The 'broker' definition includes US-based exchanges (Coinbase, Kraken, etc.) and certain hosted-wallet providers; pure self-custody activity is not directly reported. The major procedural change: the IRS will receive copies of your 1099-DA in parallel. Discrepancies between your filed return and the broker-reported amounts will get attention. The per-wallet specific-identification rule (covered in Lesson 2) is part of this finalisation.

**Hard forks and airdrops.** Rev. Rul. 2019-24 establishes that hard forks producing new cryptocurrency *received by the taxpayer* are ordinary income at fair market value when the taxpayer has 'dominion and control' (i.e., can transact). Airdrops are similarly ordinary income at fair market value at the moment of receipt. The 'when do you have dominion and control' question can be subtle for tokens that arrive in your wallet automatically vs tokens that require you to claim — the conservative position is to recognise income when the tokens become spendable, which for most claim-required airdrops is the claim date.

**Staking rewards.** US tax treatment of staking rewards is a current point of friction. The position that has been challenged in court (Jarrett v. United States) was that staking rewards are not income until disposed. The IRS's current position (and the operating assumption for most US tax software) is that staking rewards are ordinary income at fair market value upon receipt. The conservative approach is to recognise income at receipt. Subsequent disposal of those tokens produces a separate capital gain or loss event against the income-recognised basis.

**NFT income and royalties.** NFT mints sold for fiat or crypto are typically ordinary income (or self-employment income if you're an active creator). NFT royalties on secondary sales are typically ordinary income. NFT acquisition is not itself taxable; disposal triggers capital gain or loss. The IRS has indicated certain NFTs might qualify as 'collectibles' under §408(m) and be subject to the higher 28% maximum long-term collectibles rate — an area of active guidance development.

**Wash-sale rules and crypto.** US wash-sale rules under §1091 apply to 'stock and securities.' Crypto is property, not a security, so wash-sale rules **do not currently apply to crypto** as a matter of statutory law. This means US crypto holders can harvest losses and immediately re-establish positions without the 30-day wash-sale rule triggering. Several proposals to extend wash-sale to crypto have circulated but none have become law as of mid-2026. This is one of the few areas where US crypto users have a meaningful tax advantage over equity holders — use it intentionally.

**State-level taxes.** Most US states tax crypto in line with the federal framework but with their own rates and forms. California, New York, and Massachusetts treat crypto income similarly to federal but at additional state rates of up to ~13%. Florida, Texas, and Washington have no state income tax. State residency at the moment of disposal usually determines which state's rules apply. Cross-state moves mid-year require apportionment.