IRS introduces broader ‘Digital Assets’ category on Draft 2022 tax form

2022-10-26

An early draft of the 2022 IRS tax form grouped cryptocurrencies, stablecoins and nonfungible tokens under a new “Digital Asset” category.

For more information go to IRS.gov/virtualcurrencyfaqs

Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. E.g., digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.

There is a question on digital assets on page 1 of Form 1040 or 1040-SR if at any time during 2022, you (a) received (as a reward, award, or payment for property or services); or (b) sold, exchanged, gifted, or otherwise disposed of a digital asset (or any financial interest in any digital asset).

Do not leave the question unanswered. You must answer “Yes” or “No” by checking the appropriate box.

You need to check “Yes” if at any time during 2022 you:

  • Received digital assets as payment for property or services provided;
  • Received digital assets as a result of a reward or award;
  • Received new digital assets as a result of mining, staking, and similar activities;
  • Received digital assets as a result of a hard fork;
  • Disposed of digital assets in exchange for property or services;
  • Disposed of a digital asset in exchange or trade for another digital asset;
  • Sold a digital asset;
  • Transferred digital assets for free (without receiving any consideration) as a bona fide gift; or .
  • Otherwise disposed of any other financial interest in a digital asset.

You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds
digital assets.

The following actions or transactions in 2022, alone, generally don’t require you to check “Yes” to the question regarding digital assets:

  • Holding a digital asset in a wallet or account;
  • Transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control; or
  • • Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.
How to Report Digital Assets Transactions

If you disposed of any digital asset in 2022, that you held as a capital asset,through a sale, exchange, gift, or transfer, check “Yes” and use Form 8949 to calculate your capital gain or loss and report that gain or loss on Schedule D (Form 1040).

If you received any digital asset as compensation for services or disposed of any digital asset that you held for sale to customers in a trade or business, you must report the income as you would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services from Schedule C or Schedule 1.