US tax rules when real estate is paid for in digital assets

In this article

Written by

Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

About Kooky and Shaka →

A home or a parcel of land in the United States can change hands for something other than dollars. When the something is a digital asset, federal tax law does not look at the deal as a payment in money. It sees two disposals of property happening at once: the seller gives up real estate, and the buyer gives up units of a digital asset. Each side may have a gain or a loss to work out, and from 2026 the person who closes the deal has new boxes to fill in for the Internal Revenue Service.

This guide sets out what the IRS has published on the subject as of October 2026: the property rule and where it comes from, how gain, basis and holding period are worked out for buyer and seller, the question every individual return asks, what Form 1099-S and Form 1099-DA now report, and the dates on which each duty began. It closes with the points the IRS pages do not settle, above all for tokens that stand for an interest in a property. Everything here is federal. State income tax, transfer taxes and recording rules are separate subjects and are not covered.

IRS Notice 2014-21, the IRS digital assets page and the IRS digital asset FAQs.

Property, not currency: the starting rule

The whole subject rests on one sentence. The IRS digital assets page states that, for US tax purposes, digital assets are considered property, not currency, and that income from them is taxable. The rule goes back to Notice 2014-21, whose first answer says virtual currency is treated as property, so that the general rules for property transactions apply. Its second answer adds that, under the law as it stood, virtual currency cannot produce foreign currency gain or loss.

The definition the IRS uses is broad. Its digital asset FAQs, added on 15 December 2025 for transactions on or after 1 January 2025, define a digital asset as a digital representation of value recorded on a cryptographically secured distributed ledger that is not cash. Cash, in the same answer, means US dollars or a convertible foreign currency issued by a government or central bank. The examples given are cryptocurrencies, stablecoins and non-fungible tokens. The digital assets page traces the definition to the Infrastructure Investment and Jobs Act.

Two sets of IRS questions and answers now sit side by side. The older one, on virtual currency transactions, generally applies to transactions completed before 1 January 2025; the newer one applies from that date. This guide calls them the older FAQs and the FAQs.

The buyer who pays in digital assets

A buyer who hands over digital assets for a home has not simply spent money. Notice 2014-21 says that a person who exchanges virtual currency for other property has a gain if the fair market value of the property received is higher than the adjusted basis of the virtual currency, and a loss if it is lower. The newer FAQs say the same in their own terms: exchanging digital assets for other property is a taxable event, and the amount realised is the fair market value of the property received, plus the value of any services received, less the transaction costs that belong to the exchange.

The character of that gain or loss depends on how the buyer held the units. Notice 2014-21 says a capital asset, such as investment property, generally produces a capital gain or loss, while property that is not a capital asset, such as inventory held mainly for sale to customers in a trade or business, generally produces an ordinary gain or loss. Which side of that line a given holder falls on depends on the case.

A worked example, with invented figures. A buyer acquired units of a digital asset on 3 March 2024 for US$90,000, fees included, and held them as an investment. On 15 June 2026 the buyer closes on a US$500,000 house, paying US$350,000 in cash and transferring the units, which are worth US$150,000 at that moment. Transaction costs are left out to keep the sum simple. On the units, the buyer realises US$150,000 against a basis of US$90,000: a gain of US$60,000. The units were held for more than one year, so under the FAQs the gain is long-term. The buyer has bought a house and, in the same instant, sold an investment.

The same answer applies to fees. The FAQs say that paying a transaction fee with a digital asset is itself a disposal that produces a gain or loss. They define transaction costs as payments for services to effect a purchase, sale or disposal, and give gas fees, transfer taxes and commissions as examples. Costs reduce the amount realised on a sale and increase the basis on a purchase. The cost of moving units between a person's own wallets is not a transaction cost, and such a move is not taxable, except for any digital asset used to pay the fee.

The seller who receives them

The seller's sum mirrors the buyer's. The FAQs say that a person who transfers property for digital assets recognises a gain or loss, capital if the property was a capital asset and ordinary if it was not. The gain is the fair market value of the digital assets when received, less the seller's adjusted basis in the property given up.

A second worked example, again with invented figures and with costs left out. An investor owns a parcel of land with an adjusted basis of US$380,000 and sells it wholly for digital assets worth US$500,000 when received. The gain on the land is US$500,000 less US$380,000: US$120,000. Whether any exclusion or other relief applies to a particular sale, such as the exclusion for a principal residence, is a separate question that the digital asset pages do not deal with.

The seller then holds a new asset. Under the FAQs, the basis of digital assets received for property is their cost, which equals the fair market value used to work out the amount realised, plus any allowable acquisition costs. In the example the units enter the seller's records at US$500,000. If the seller later sells them for US$470,000, the result is a loss of US$30,000 on the units, quite apart from the gain already recognised on the land. A seller who does not convert at once therefore carries a second position, with its own basis and its own clock.

Basis and holding period on both sides

Basis is the figure every later calculation starts from. The older FAQs define it as the amount spent to acquire the asset, including fees and commissions, in US dollars, and describe adjusted basis as that figure increased or decreased by certain items. For the three situations a property deal creates, the IRS answers are these:

• Real estate received for digital assets takes a basis equal to its fair market value at the time of the exchange, according to the FAQs. For the buyer in the first example, the part of the house paid for with units starts from US$150,000, not from the US$90,000 the units once cost.
• Digital assets received for real estate take a basis equal to their fair market value when received, plus allowable acquisition costs.
• Digital assets received as a gift carry the donor's basis for working out a gain; the older FAQs add that, without documents showing the donor's basis, the basis is zero.

The holding period decides whether a capital gain or loss is short-term or long-term. The IRS digital assets page puts the line at one year: held for one year or less is short-term, held for more than one year is long-term. The FAQs say the period begins the day after acquisition and, in the older set, ends on the day of the sale or exchange. For the seller in the second example, the clock on the units starts the day after they arrive.

Someone who bought units at different times and prices has to know which ones left the wallet at closing. The older FAQs let a holder choose the units treated as sold, provided the units can be specifically identified and their basis shown. Without identification, the units are treated as disposed of in chronological order, first in, first out. The newer FAQs keep both ideas and add timing: for units in an unhosted wallet, the identification has to be made no later than the date and time of the transaction, with adequate records, and for units held with a broker after 31 December 2025 the holder specifies the units to the broker or has a standing order in place. Absent that, units are treated as sold in order from the earliest acquisition date.

Valuing the payment in US dollars

Every figure above is in US dollars, and the IRS expects the conversion to be made at a precise moment. Notice 2014-21 says values are reported in US dollars as of the date of payment or receipt, and that where a virtual currency is listed on an exchange with a rate set by the market, it is converted at that rate, applied reasonably and consistently.

The older FAQs go further. Where a cryptocurrency exchange handles the transaction, the value is the amount the exchange records in US dollars. For a peer-to-peer transfer, the value is fixed at the time the transaction is recorded on the distributed ledger, or would have been recorded there, and the IRS says it will accept as evidence a value taken from a blockchain explorer that gives an exact date and time. Without that, the holder has to show the value is accurate. If the asset is not traded on any exchange and has no published value, its fair market value is taken to be the fair market value of the property or services exchanged for it. In a real estate deal that last rule points back to the value of the property itself.

For the information return, the Form 1099-S instructions give their own definition: the digital asset received means the fair market value in US dollars of the digital asset actually received. Where the seller is to be paid a digital asset later, the value includes the fair market value, as of the date the obligation is entered into, of the digital asset to be paid. The instructions refer to the Treasury regulations on broker reporting for the valuation method.

The digital asset question on the tax return

Whatever a closing agent reports, the taxpayer answers for the deal on the return itself. The question, as the IRS digital assets page gives it, reads: at any time during the tax year, did you receive (as a reward, award or payment for property or services), or sell, exchange or otherwise dispose of a digital asset or a financial interest in a digital asset? It appears on Forms 1040, 1040-SR and 1040-NR for individuals, and on Forms 709, 1041, 1065, 1120 and 1120-S.

Both parties to a property deal settled in digital assets land in the first two rows: the seller received them as payment for property, and the buyer disposed of them in exchange for property.

The gain or loss itself goes elsewhere. The digital assets page sends disposals of digital assets held as capital assets to Form 8949, and the older FAQs add that the totals are then summarised on Schedule D of Form 1040. The newer FAQs say Form 8949 is used unless the broker's Form 1099-DA gives both gross proceeds and basis. They are also plain on one point: taxable transactions are reported whether or not a payee statement arrives, and gains and losses are reported even where a broker issues no Form 1099-DA.

Form 1099-S for closings from 2026

Form 1099-S is the information return for the sale or exchange of real estate. Its instructions, in the December 2026 revision that the IRS says is used to file 2026 information in early 2027, state that digital assets used in a real estate sale or exchange are reported on the form beginning in tax year 2026.

The form is filed by one person per deal. The instructions name the person responsible for closing, generally the settlement agent listed on the Closing Disclosure. If nobody is responsible for closing, the duty falls in order on the mortgage lender, the transferor's broker, the transferee's broker and then the transferee. The parties can also name the filer in a written designation agreement at or before closing, which is kept for 4 years. Only one Form 1099-S is filed for each transferor, and the filer may not charge a separate fee for it.

Taking the first worked example again, the seller's form would show US$350,000 in box 2b, US$150,000 in box 2c and US$500,000 in box 2a. Gross proceeds are not reduced by the seller's expenses. The instructions also count as cash any money the seller receives from a processor of digital asset payments, so a buyer who pays in units that a processor converts before the seller is paid produces a cash figure, not a box 2c figure, on the seller's form.

There is a limit on what the filer has to know. According to the instructions, information on a payment in digital assets is not required unless the filer has actual knowledge of the payment or would ordinarily know of it, and the filer is taken to have actual knowledge when the contract provides for payment in digital assets. A transfer between the parties that the closing agent never sees and the contract never mentions is therefore treated differently from one written into the contract.

The older exceptions still stand. The instructions list, among others, the sale of a principal residence for US$250,000 or less, or US$500,000 or less where the certification states the seller is married, when the filer holds the seller's written certification that the full gain is excludable; transfers by corporations and governmental units; gifts and bequests; and transactions where the total consideration is certainly less than US$600.

Form 1099-DA and the real estate reporting person

Form 1099-S tells the IRS what the seller received. The buyer's side runs through a different return. Form 1099-DA, Digital Asset Proceeds from Broker Transactions, is the return on which brokers report sales of digital assets.

The 2026 instructions for Form 1099-DA define a broker as anyone who, in the ordinary course of a trade or business, stands ready to effect sales of digital assets for others. One kind of broker is the digital asset middleman, and the list of middlemen includes a real estate reporting person who knows, or ordinarily would know, that the real estate buyer used digital assets to make payment. The definition of a sale follows through: for brokers that are real estate reporting persons, it includes the disposal of digital assets in exchange for real property and services.

The IRS fact sheet on the final regulations, issued in June 2024 and updated on 7 November 2025, puts the result in one line: real estate professionals treated as brokers report the fair market value of digital assets paid by buyers and received by sellers, for transactions with closing dates on or after 1 January 2026.

What the form carries is set out box by box in its instructions: a code and name for the digital asset, the number of units, the dates acquired and disposed of, proceeds in box 1f and cost or other basis in box 1g, with further boxes for withheld federal income tax and for whether basis was reported to the IRS. Basis reporting is tied to what the instructions call a covered security: a digital asset acquired after 2025 in an account where the broker provided custodial services and held there until disposal. Units acquired before 2026, or transferred in from elsewhere, are noncovered, and the broker need not report their basis. The instructions do not say how a real estate reporting person, who normally holds no units for the buyer, completes each box.

Phase-in dates, thresholds and relief

The reporting system arrived in stages, and some parts are still softened by transition relief.

The brokers covered are those that take possession of customers' assets: the digital assets page lists custodial trading platforms, certain hosted wallet providers, digital asset kiosks and certain processors of digital asset payments. Decentralised or non-custodial brokers that do not take possession are not covered by these rules.

Three thresholds appear in the 2026 Form 1099-DA instructions. A processor's payment sales for a customer are not reportable if they total US$600 or less for the year; above that, all of them are. Under optional methods, sales of qualifying stablecoins need not be reported where a customer's aggregate gross proceeds are US$10,000 or less for the year, and sales of specified non-fungible tokens where they are US$600 or less. These are limits on what a broker reports. They are not limits on what a taxpayer owes: the FAQs require every taxable transaction to be reported on the return.

On relief, the fact sheet says Notice 2024-56 lifts failure-to-file and failure-to-furnish penalties for 2025 transactions where a broker makes a good-faith effort, and that it gives relief from backup withholding, until further guidance, on disposals of digital assets in return for real property. That is relief from withholding, not from reporting. Notice 2025-33 then extended the general backup withholding relief through calendar year 2026 and set narrower terms for 2027; it cites a backup withholding rate of 24 per cent and does not mention real property. Notice 2024-57 separately suspends Form 1099-DA reporting for six kinds of transaction, among them wrapping, staking and lending.

One practical date is on record for the year just closed: the general instructions for 2025 information returns give 17 February 2026 for the recipient's copy of Forms 1099-S and 1099-DA, and 31 March 2026 for electronic filing. The pages read for this guide do not give the matching dates for 2026 returns.

What the IRS has not said about property tokens

Paying for a house with a digital asset is one thing. Holding a token that represents the house, or a share of it, is another, and here the published guidance thins out.

What the pages do say is limited to neighbouring cases. The Form 1099-DA instructions cover tokenised securities, which are reported on Form 1099-DA and not on Form 1099-B, with a CUSIP or other identifier entered. They cover dual classification assets, such as contracts under section 1256 of the Code. Notice 2023-27, listed on the digital assets page, concerns the treatment of certain non-fungible tokens as collectibles. None of this answers the questions a property token raises.

Several of those questions can be stated plainly. The Form 1099-S instructions define reportable real estate as a present or future ownership interest in land, permanent structures, condominium units, cooperative housing stock or standing timber, and exclude options to acquire real estate. They do not say whether the transfer of a token is the transfer of such an interest, or of something else, such as a share in an entity that owns the building. They do not say which return applies when a token of that kind is sold on a platform: Form 1099-S, Form 1099-DA, both or neither. And the digital asset FAQs, which deal at length with basis and holding period for units of a digital asset, do not say how those rules meet the rules for the real property underneath. Until the IRS addresses the point, the treatment of a given token depends on what the token legally is, and that depends on the case.

The records behind every figure

Each calculation in this guide needs a date, a quantity and a dollar value. The IRS digital assets page asks holders to keep records of purchases, receipts, sales, exchanges and other disposals, and of the fair market value in US dollars of digital assets received as income or as payment. For a disposal, it lists what has to be known: the type of asset, the date and time, the number of units, the fair market value in US dollars and the basis.

For a property deal that means two files that have to agree. The closing documents fix the date of closing, which the Form 1099-S instructions take from the Closing Disclosure, or failing that from the earlier of the transfer of title and the shift of the economic burdens and benefits of ownership. The ledger record fixes the moment the units moved and how many. The older FAQs sum up the standard in one phrase: records sufficient to establish the positions taken on the return.

A deal settled in digital assets is two disposals at once, one of the land and one of the units, and each side keeps its own basis and its own clock.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

About Kooky and Shaka →