How to Report Cryptocurrency Gains Using Schedule D

You bought some Bitcoin last year and watched it go up. Sold some for profit. Maybe traded it for Ethereum. Used some to buy something online. Then tax season arrives and you realize you need to report all of this to the IRS.

You look at Schedule D Capital Gains and Losses. Lines asking about dates, cost basis, and proceeds. But your crypto is spread across three different exchanges. You made dozens of trades. Some wallets you barely remember. How do you turn all that into a tax form?

Crypto investors have no idea they owe taxes until it's too late. They think crypto is anonymous. They don't realize exchanges report to the IRS. They have no records of their cost basis. And when they try to figure out their taxes, they find tracking hundreds of transactions across multiple platforms nearly impossible. Here’s how you can report cryptocurrency gains and losses using Schedule D for 2025.

Understanding How Crypto Taxes Work

The IRS treats cryptocurrency as property, similar to stocks or real estate, not like dollars or euros. Every disposal triggers a gain or loss that you must track and report on your crypto tax Schedule D filing. Only holding crypto isn't taxable—you only pay tax when you do something with it.

Two Types of Crypto Tax

Crypto creates capital gains tax when you sell, trade, or spend crypto. If held over 1 year, it's long-term with rates of 0%, 15%, or 20%. If held 1 year or less, it's short-term with rates of 10-37% (same as income). Crypto also creates ordinary income tax when you earn new crypto through mining rewards, staking rewards, airdrops, or payment for goods or services in crypto, taxed at regular income rates (10-37%).

On Form 1040's first page, you must answer "At any time during 2025, did you receive, sell, send, exchange, or otherwise dispose of any digital asset?" Answer Yes or No. Lying here can void your entire return. If you touched crypto at all in 2025, answer Yes.

4-Step Process to Report Cryptocurrency on Schedule D

Follow these five steps to accurately report crypto capital gains and losses while minimizing your tax liability.

Step 1: Understand Crypto Capital Gains and Calculate Your Profits

Learning how crypto capital gains tax works is the foundation for accurate reporting and tax planning.

Calculating Your Gain or Loss

Use this simple formula: Sale price - cost basis = gain or loss. 

Sale price is what you received when you sold or traded. The cost basis is what you paid to buy it plus fees.

Examples:  

1. You bought 1 Bitcoin for $30,000 (including fees) and sold for $50,000 (minus fees). Your gain is $50,000 - $30,000 = $20,000. You pay tax on that $20,000.
2. Crypto-to-crypto trades are taxable events that confuse many investors. You bought 1 ETH for $2,000, ETH is now worth $3,000, you trade that ETH for Bitcoin. Your gain is $3,000 - $2,000 = $1,000, and you pay tax on $1,000 even though you still have crypto. Many people mistakenly think crypto-to-crypto trades aren't taxable—they are.
3. You bought Bitcoin for $10,000, Bitcoin is now worth $15,000, you use it to buy a car worth $15,000. Your gain is $15,000 - $10,000 = $5,000, and you pay tax on $5,000.

Short-Term vs. Long-Term Rates 

Short-term capital gains on cryptocurrency (held 1 year or less) are taxed as ordinary income at rates of 10%, 12%, 22%, 24%, 32%, 35%, or 37% based on your total income. 

Long-term rates (held more than 1 year) are special lower rates: 

• 0%  if the income is under $48,350 for single ($96,700 married) for 2025, 
• 15% of income $48,351-$533,400 single ($96,701-$600,050 married), 
• 20% if income over $533,400 single ($600,050 married). 

Plus there's a possible 3.8% Net Investment Income Tax if income exceeds $200,000 single ($250,000 married).

Key Tip: Research shows crypto investors who track holding periods save an average of $800-2,400 per year in taxes.

Step 2: Track All Crypto Transactions and Maintain Accurate Records

Accurate tracking is the hardest part of crypto taxes but essential for correct crypto Schedule D reporting.

For every transaction, record the date and time, type of transaction (buy, sell, trade, spend), amount of crypto, value in USD at time of transaction, fees paid, which wallet or exchange, and what you received (if trade or purchase). This comprehensive tracking enables accurate capital gains on cryptocurrency calculations.

Cost Basis Methods for Crypto

When you sell some but not all crypto, choose between:

• Specific Identification:  Best for tax planning—choose exactly which purchase you're selling, pick highest-cost purchase to minimize gain, must identify before sale settles, requires detailed tracking.
• First In First Out or FIFO: Default method—oldest purchase sold first, usually results in higher gains if crypto went up, IRS default if you don't specify 
• Last In First Out or LIFO: Newest purchase sold first, may result in lower gains, must be used consistently. 

Note that Average Cost is not allowed for crypto unlike mutual funds—IRS says crypto must use FIFO or specific identification.

Key Tip: Track everything from day one. Use crypto tax software to connect all exchanges and wallets. Don't wait until April. Costs $50-300/year but saves thousands in avoided penalties and found deductions.

Step 3: Identify Taxable and Non-Taxable Crypto Events

Understanding which crypto activities trigger taxes helps you plan strategically and avoid surprises.

Selling crypto for cash is the most straightforward taxable event:

• Sell Bitcoin for dollars creating gain or loss based on price change, reported on crypto Schedule D.  Trading crypto for crypto is often missed but taxable—Bitcoin for Ethereum, Ethereum for Solana, any coin for any other coin are all taxable, and you must calculate the value in USD at time of trade. 
• Spending crypto to buy things (coffee, car, any service or purchase) is taxable with fair market value at time of purchase determining gain or loss.
• Getting paid in crypto is ordinary income at the value when received, will be reported on Schedule 1 or Schedule C (if self-employed), then track that basis for when you sell. 

Non-Taxable Crypto Events

• Buying crypto with cash (buying Bitcoin with dollars) is not taxable—no tax until you sell, trade, or spend, just track your cost basis. 
• Transferring between your own wallets (from Coinbase to hardware wallet or from one wallet to another you own) is not taxable—just a transfer, not a sale, same crypto same owner, but track transfer fees as those add to your cost basis. 
• Gifting crypto to someone is not taxable to you (unless a huge gift needing a gift tax return), recipient gets your cost basis and holding period, they pay tax when they sell.
• Donating crypto to charity (giving to qualified charity) is not taxable to you, can deduct fair market value (if held over 1 year), charity can sell tax-free, creating a powerful tax strategy. 

Key Tip: Many people mistakenly think crypto-to-crypto trades aren't taxable. They are taxable and must be reported for accurate crypto capital gains tax calculations.

Step 4: Complete Form 8949 and Transfer to Schedule D

Form 8949 provides detailed transaction records before summarizing on your crypto tax Schedule D.

Form 8949 lists every crypto transaction like a detailed worksheet showing each buy and sell with totals going to Schedule D. The IRS wants this detail for all capital gains on cryptocurrency. 

The form has two parts: 

• Part I for Short-Term Transactions (crypto held 1 year or less with each transaction listed)
• Part II for Long-Term Transactions (crypto held more than 1 year with each transaction listed).

Completing Form 8949 Columns

• Column (a) Description shows what you sold (like "1.5 Bitcoin" or "20 Ethereum"—be specific). 
• Column (b) Date Acquired shows when you bought it (specific date if known, "Various" if multiple purchases—track carefully for holding period). 
• Column (c) Date Sold shows when you sold/traded it (settlement date determines which year to report). 
• Column (d) Proceeds shows what you received (sale price in USD or fair market value if traded, before fees). 
• Column (e) Cost Basis shows what you paid (purchase price plus fees in USD, include all acquisition costs). 
• Column (f) Code is usually blank for crypto unless the basis reported to IRS (leave blank or use code) or not reported to IRS (enter code "X"). 
• Column (g) Adjustments shows corrections to basis or proceeds like wash sales (rare for crypto) or other adjustments (usually zero). 
• Column (h) Gain or Loss is Column (d) minus column (e)—if positive it's gain, if negative it's loss, calculated for each transaction.

Transferring to Schedule D

After Form 8949, transfer totals to Schedule D. 

Part I covers Short-Term Capital Gains and Losses with Line 1b showing short-term from Form 8949 (enter totals from Form 8949 Part I for total proceeds, total cost basis, total adjustments, total gain or loss).

 Lines 2-6 cover other short-term items (usually blank for crypto). Line 7 shows Net Short-Term Gain or Loss (bottom line for short-term—if positive it's short-term gain, if negative it's short-term loss).

Part II covers Long-Term Capital Gains and Losses with Line 8b showing long-term from Form 8949 (enter totals from Form 8949 Part II, same columns as short-term but for crypto held over 1 year). Lines 9-14 are usually blank for crypto. 

Line 15 shows Net Long-Term Gain or Loss (if positive it's long-term gain taxed at lower rates, if negative it's long-term loss).

Schedule D Part III Summary

Line 16 combines short and long-term by adding Line 7 and Line 15 to show your total net gain or loss from crypto. If you have net gain, follow Schedule D instructions to calculate tax using special rates for long-term gains via the Qualified Dividends and Capital Gain Tax Worksheet where long-term gains get preferential rates. 

If you have net loss, you can deduct up to $3,000 against other income (maximum $3,000 per year, $1,500 if married filing separately) to reduce your wages or other income and carry forward excess losses to future years. Example: $15,000 crypto loss with no gains means deduct $3,000 this year and carry forward $12,000 to next year. Losses never expire—use them until gone.

Key Tip: Most crypto investors with many transactions use software to generate Form 8949 and Schedule D automatically. Manual entry is error-prone and time-consuming.

Key Tax Strategies to Minimize Crypto Capital Gains Tax

Smart strategies implemented throughout the year significantly reduce your crypto capital gains tax burden.

#1 Hold Crypto Over 1 Year

The biggest tax saver is waiting until day 366 to sell winners, dropping your rate from 10-37% to 0-20%. On a $50,000 gain, this saves $5,000-17,000. Track purchase dates carefully and set reminders for one-year holding periods.

#2 Harvest Crypto Losses

Year-end tax planning involves reviewing your portfolio in November-December, identifying losing positions, and selling to offset gains. No wash sale rule applies to crypto yet, so you can buy back immediately. Example: Sold Bitcoin for $30,000 gain, find altcoins with $15,000 losses, sell those altcoins creating net gain of only $15,000. Tax savings: $2,250-5,550. Unlike stocks, no 30-day wait is required for crypto (though this may change).

#3 Use the 0% Capital Gains Bracket

If income is low (single under $48,350 total income or married under $96,700 total income for 2025), you pay 0% on long-term crypto gains and can sell winners tax-free. This strategy is great for early retirees, students, or low-income years.

#4 Donate Appreciated Crypto

For donors, this is powerful—donate crypto directly to charity (not cash), get a deduction for full fair market value, never pay capital gains tax, and the charity sells tax-free. 

Example: Bitcoin bought for $5,000 now worth $25,000. Donate to charity to deduct $25,000 and pay no capital gains versus selling and donating cash where you pay $3,000-7,400 tax then donate. Must hold over 1 year to deduct full value.

#5 Use Specific Identification for Partial Sales

When selling partial holdings, identify which purchase you're selling, pick the highest-cost purchase to minimize gain, tell the exchange before settlement, and keep documentation. 

Example: Own Bitcoin bought at $20K, $40K, and $60K, selling at $70K. Specify selling $60K purchase equals $10K gain instead of FIFO $20K purchase equals $50K gain, saving tax on $40K difference.

How NSKT Global Can Help with Crypto Taxes

NSKT Global specializes in cryptocurrency tax planning and crypto Schedule D preparation. We handle complete crypto tax preparation by importing transactions from all exchanges, connecting to wallets via API, calculating cost basis for every transaction, completing Form 8949 with all details, preparing crypto tax Schedule D accurately, and handling complex DeFi and staking transactions.

We implement strategic tax-loss harvesting to review portfolios for losses, identify optimal selling opportunities, offset gains to minimize crypto capital gains tax, with no wash sale concerns yet, potentially saving thousands annually. 

We provide audit defense if the IRS questions your crypto by providing documentation, explaining transactions, defending basis calculations, and representing you in audits. Whether you made two crypto transactions or two thousand, our expertise ensures you report everything correctly while paying the least tax legally possible.

Frequently Asked Questions

Q: Do I have to report crypto if I didn't sell anything?
Must answer Yes to digital asset question on Form 1040 if you received, sent, exchanged, or disposed of crypto. But if you only bought crypto and held it, you don't have capital gains to report on Schedule D. Still answer Yes to the question.

Q: What if I lost my crypto in a hack or exchange bankruptcy?
Can claim as casualty loss or ordinary loss. Must prove you owned it and it's truly gone. Document with police reports, bankruptcy filings, exchange notices. Rules changed in recent years—consult professionals.

Q: How does the IRS know about my crypto transactions?
Exchanges report to IRS (Form 1099-DA starting 2026 for 2025 transactions). IRS uses blockchain analysis. Summons to exchanges for customer data. International information sharing. Don't assume anonymity—report everything.

Q: Can I use crypto losses to offset stock gains?
Yes, capital losses from any source (crypto, stocks, real estate) can offset capital gains from any other source. Then up to $3,000 can offset ordinary income. Losses are losses regardless of source.

Q: What if my exchange went out of business and I lost my records?
Try to reconstruct from emails, bank statements, blockchain records. Use blockchain explorers to find your transactions. Estimate cost basis if necessary using a reasonable method. Document your efforts. 

Q: Do I need to report receiving crypto as payment?
Yes, receiving crypto for work is ordinary income (not capital gain). Report at fair market value when received on Schedule 1 or Schedule C. Then when you later sell that crypto, it creates capital gain or loss on Schedule D.