October 2025- Q&A, Virtual Currency

Q&A with virtual currency

Q1: How is virtual currency treated for federal income tax purposes?
A1. Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency. For more information on the tax treatment of virtual currency, see Notice 2014-21. For more information on the tax treatment of property transactions, see Publication 544, Sales and Other Dispositions of Assets.

Q2: How do I calculate my gain or loss if I exchange my virtual currency for other property?
A2. Your gain or loss is the difference between the fair market value of the property you received and your adjusted basis in the virtual currency exchanged. For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

Q3: How do I determine my basis in property I’ve received in exchange for virtual currency?
A3: If, as part of an arm’s length transaction, you transferred virtual currency to someone and received other property in exchange, your basis in that property is its fair market value at the time of the exchange. For more information on basis, see Publication 551, Basis of Assets.

This newsletter contains general information for taxpayers and should not be relied upon as the only source of authority.  Taxpayers should seek professional tax advice for their specific tax situation and for more information.