Virtual Currency and Digital Assets on Form 1040 Explained: When to Check Yes or No
- When to Check "Yes" on the Digital Asset Question
- When to Check "No" on the Digital Asset Question
- How Are Digital Asset Transactions Taxed?
- What Is Form 1099-DA? (New for 2025)
- OBBB Wash Sale Rule for Digital Assets (New for 2025)
- How Do Digital Assets Affect Expat Taxes?
- Record-Keeping Requirements
- Frequently Asked Questions
- Related Resources
Every U.S. taxpayer must answer the digital asset question on Form 1040 before filing. For the 2025 tax year, the question reads: “At any time during 2025, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” Your answer determines whether you have reportable transactions and affects which forms you need to file.
According to the IRS, digital assets include cryptocurrency (Bitcoin, Ethereum, stablecoins), non-fungible tokens (NFTs), and any other cryptographically secured asset recorded on a distributed ledger. The IRS treats all digital assets as property, not currency, which means every sale, trade, or use triggers a capital gains calculation.
For the 2025 tax year, two major changes affect how digital asset transactions are reported: brokers (including centralized exchanges like Coinbase and Kraken) must now issue Form 1099-DA reporting gross proceeds from sales, and the One Big Beautiful Bill Act introduced wash sale rules for digital assets that are also securities, effective for transactions on or after January 1, 2025.
Not Sure Whether to Check “Yes” or “No”?
Here’s when to check “Yes,” when to check “No,” how to report your transactions, and what expats abroad need to know.
When to Check “Yes” on the Digital Asset Question
Check “Yes” if you did any of the following during the tax year:
| Transaction | Example | Reportable? |
|---|---|---|
| Sold digital assets for cash | Sold Bitcoin on Coinbase for USD | Yes |
| Exchanged one digital asset for another | Traded Ethereum for Solana | Yes |
| Used digital assets to pay for goods or services | Paid for a subscription with Bitcoin | Yes |
| Received digital assets as payment for work | Client paid you in cryptocurrency for freelance work | Yes |
| Received digital assets from mining | Mined Ethereum and received tokens | Yes |
| Received digital assets from staking rewards | Earned staking rewards on Cardano | Yes |
| Received digital assets from an airdrop | Free tokens deposited in your wallet | Yes |
| Received digital assets as a gift and then sold them | Received Bitcoin as a gift and later sold it | Yes (the sale) |
| Received digital assets from a hard fork and then sold | Received new tokens from a fork and sold them | Yes (the sale) |
When to Check “No” on the Digital Asset Question
Check “No” if your only digital asset activity was:
- Buying digital assets with USD (or other fiat currency) and holding them without selling, exchanging, or using them
- Transferring digital assets between your own wallets or accounts (wallet-to-wallet transfers you control)
- Holding digital assets without any transactions during the year
Take note: Simply owning cryptocurrency does not require checking “Yes.” The question targets transactions, not holdings. However, if you received any digital assets (even small staking rewards or airdrops), you must check “Yes.”
How Are Digital Asset Transactions Taxed?
The IRS treats digital assets as property. This means every disposition triggers a capital gain or loss calculation.
| Event | Tax Treatment | Reported On |
|---|---|---|
| Sale for cash | Capital gain or loss (short-term if held under 1 year, long-term if over) | Form 8949 and Schedule D |
| Exchange for another digital asset | Capital gain or loss (treated as sale of first + purchase of second) | Form 8949 and Schedule D |
| Payment for goods or services | Capital gain or loss based on fair market value at the time of use | Form 8949 and Schedule D |
| Received as payment for work (employee) | Ordinary income at fair market value when received | W-2 (wages) |
| Received as payment for work (contractor) | Ordinary income + self-employment tax | Schedule C |
| Mining income | Ordinary income at fair market value when received; self-employment tax if part of a trade or business | Schedule C (if business) or Schedule 1 (if hobby) |
| Staking rewards | Ordinary income at fair market value when received | Schedule 1 or Schedule C |
| Airdrops | Ordinary income at fair market value when received | Schedule 1 |
| Gifts received | No tax at receipt; capital gain or loss when sold (using donor’s basis) | Form 8949 when sold |
Capital gains rates for 2025: Short-term gains (held under 1 year) are taxed at ordinary income rates (10% to 37%). Long-term gains (held over 1 year) are taxed at 0%, 15%, or 20%, depending on your taxable income.
What Is Form 1099-DA? (New for 2025)
Starting with transactions on or after January 1, 2025, U.S. brokers (centralized exchanges, custodial wallet providers, digital asset kiosks, and certain payment processors) must report gross proceeds from digital asset sales on Form 1099-DA.
| What Form 1099-DA Reports (2025) | What It Doesn’t Report Yet |
|---|---|
| Gross proceeds from sales | Cost basis (required starting 2026) |
| Date of sale | Gains or losses (you calculate these) |
| Digital asset name and quantity | Transactions on decentralized exchanges or foreign brokers |
The 2025 Form 1099-DA filing requirements apply only to U.S. brokers. If you use a foreign exchange (such as Binance International), that exchange is not required to issue Form 1099-DA. You must still report all transactions on your tax return, regardless of whether you receive a 1099-DA.
The IRS has announced good-faith penalty relief for 2025 Form 1099-DA filings, meaning brokers won’t be penalized for minor errors in this first year of reporting.
OBBB Wash Sale Rule for Digital Assets (New for 2025)
The One Big Beautiful Bill Act (OBBB), signed on July 4, 2025, extended wash-sale rules to digital assets that are also treated as stock or securities for tax purposes (tokenized securities). This means if you sell a tokenized security at a loss and buy substantially identical tokens within 30 days before or after the sale, the loss is disallowed.
This rule applies to transactions on or after January 1, 2025. It does not currently apply to standard cryptocurrencies like Bitcoin and Ethereum, which are treated as property, not securities. However, tokenized stocks, bonds, and other securities represented on a blockchain are covered.
How Do Digital Assets Affect Expat Taxes?
1. The FEIE Does Not Apply to Digital Asset Gains
The Foreign Earned Income Exclusion ($130,000 for 2025) only applies to earned income. Capital gains from the sale of digital assets are treated as investment income and cannot be excluded under the FEIE. However, if you receive cryptocurrency as payment for services (freelance work, consulting), that portion is earned income and may qualify for the FEIE.
2. The Foreign Tax Credit May Help
If your country of residence taxes digital asset gains and you pay foreign tax on them, the Foreign Tax Credit can offset your U.S. tax on the same gains dollar-for-dollar.
3. FBAR Reporting
Under the most recent FinCEN guidance (Notice 2020-2), foreign accounts holding only digital assets are not required to be reported on the FBAR. However, FinCEN has stated this may change in the future. If a foreign account holds both digital assets and fiat currency, the fiat currency portion counts toward the $10,000 FBAR threshold.
4. Self-Employment Tax on Mining and Staking
If you mine or stake digital assets as part of a trade or business, the income is subject to self-employment tax (15.3%) in addition to income tax. The FEIE can exclude the income tax portion but not the self-employment tax.
For a broader guide on cryptocurrency tax obligations for Americans abroad, see our expat cryptocurrency tax guide.
Record-Keeping Requirements
The IRS expects you to maintain records for every digital asset transaction. Keep the following for at least three years after filing:
- Date and time of each acquisition and disposition
- Fair market value in USD at the time of each transaction
- Cost basis (what you paid, including fees)
- Gain or loss for each transaction
- Wallet addresses and transaction IDs
- Exchange records and Form 1099-DA (if received)
- Records of mining or staking activity, including fair market value on the date received
Use crypto tax tracking software (CoinTracker, Koinly, TokenTax, or similar) to generate Form 8949 data automatically. Manually tracking hundreds of transactions across multiple wallets and exchanges is error-prone and time-consuming.
Frequently Asked Questions
No. If your only activity was purchasing digital assets with fiat currency and holding them without selling, exchanging, or receiving any, check “No.”
You should check “Yes.” Any receipt of digital assets, regardless of the amount, is a reportable event. Review your wallet history and exchange accounts for any tokens received during the year.
For 2025 transactions, U.S.-based brokers and exchanges are required to issue Form 1099-DA reporting gross proceeds. Foreign exchanges are not required to issue this form. Regardless of whether you receive one, you must report all digital asset transactions.
No. Capital gains from digital asset sales are investment income, not earned income. The FEIE cannot exclude them. If you received cryptocurrency as payment for services, that payment is earned income and may qualify for the FEIE.
Not currently. FinCEN Notice 2020-2 states that foreign accounts holding only digital assets are not yet subject to FBAR reporting. This may change in the future. Accounts holding both crypto and fiat currency are reportable for the fiat portion.
The IRS receives Form 1099-DA data from U.S. brokers and can cross-reference it with your return. Failure to report can result in accuracy penalties (20% of the underpayment), failure-to-file penalties, and, in cases of willful evasion, criminal prosecution. Answering the digital asset question incorrectly is treated the same as any other misstatement on your return.
You are still required to report all transactions. The absence of a 1099 does not eliminate your reporting obligation. Use your wallet transaction history and blockchain records to reconstruct your activity.
Digital asset reporting is one of the fastest-changing areas of U.S. tax law, and the rules get more complex when you add expat-specific considerations like the FEIE, Foreign Tax Credit, and foreign exchange accounts. At Greenback, our CPAs and Enrolled Agents stay current with every regulatory change and ensure your digital asset transactions are reported correctly alongside your full expat tax return.
If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on digital asset taxes or working with Greenback, contact our Customer Champions.
Report Your Crypto the Right Way
This article is for informational purposes only and should not be considered tax advice. Digital asset tax rules are evolving rapidly. For the latest guidance, see the IRS digital assets page and IRS FAQs on digital asset transactions. Always consult with a qualified tax professional regarding your specific situation.
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