Cryptocurrency Taxation
Cryptocurrency is treated as property, so every sale, trade, or purchase made with it is a taxable disposal that needs a cost basis. Trading one coin for another is a taxable event even though no cash was involved. Blue Sage reconstructs basis across exchanges and wallets and reports the result correctly.
What's included
- Gain and loss calculation across all exchanges and wallets
- Cost basis reconstruction where exchange records are incomplete
- Coin-to-coin trade reporting
- Staking, mining, and airdrop income
- DeFi transactions, liquidity positions, and wrapped assets
- NFT purchases and sales
- CP2000 responses where the IRS proposed tax on gross proceeds
- Reporting for crypto held or traded on non-U.S. platforms
Who this is for
Anyone who traded, spent, staked, or earned crypto and is not confident the reporting is right. Also anyone who has received a notice proposing tax on the full proceeds of their crypto sales — a very common outcome, because exchanges report totals to the IRS without reporting what you paid.
The reconstruction work is usually the bulk of the job. If you have moved assets between wallets and exchanges over several years, the basis history has to be rebuilt before anything can be reported accurately.
Deadlines and rules worth knowing
| Item | What applies |
|---|---|
| Classification | Property, not currency. Every disposal is a capital gain or loss event. |
| Coin-to-coin trades | Taxable, even though no dollars changed hands. The trade is a sale of one asset and a purchase of another. |
| Spending crypto | Buying something with crypto is a disposal of the crypto at fair market value |
| Staking and mining | Generally ordinary income at fair market value when received, then a capital asset with that value as its basis |
| Holding period | Long-term rates apply after more than a year, the same as other capital assets |
| Exchange reporting | Exchanges increasingly report proceeds to the IRS. They often do not report your cost basis, which is why notices overstate the tax. |
| Lost records | Basis can usually be reconstructed from blockchain records and exchange exports, but it takes time |
| Foreign platforms | May create separate foreign account reporting obligations |
How we work
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Review what exists
We read last year’s return and whatever records you have. Most of what needs fixing is visible quickly.
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Fixed quote in writing
Scope and price before anything starts, counting entities, states, and any cleanup needed.
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File and maintain
Returns prepared and filed, notices answered, and a projection before year end.
Questions
Do I owe tax if I only traded one crypto for another?
Yes. Because cryptocurrency is treated as property, trading one coin for another is a disposal of the first asset and a purchase of the second. Gain or loss is measured in dollars at the time of the trade, even though no dollars were involved. This is the single most commonly missed crypto reporting obligation.
The IRS says I owe tax on my full crypto sale proceeds. Is that right?
Almost certainly not. Exchanges report gross proceeds to the IRS but frequently do not report what you originally paid. The matching system then proposes tax on the entire amount as if your cost were zero. Supplying the basis documentation usually reduces the proposed balance substantially or eliminates it.
How is staking income taxed?
Staking rewards are generally treated as ordinary income at their fair market value on the date you receive them. That value then becomes your cost basis, so when you later sell the staked tokens you have a separate capital gain or loss measured from that point. Both events need reporting.
Last reviewed 11 September 2026 by Fahadun Nabi, Founder, Blue Sage Tax and Accounting Inc.. General information, not advice for your specific situation.
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