Crypto gambling has moved from a niche hobby to a mainstream activity, drawing more attention from tax authorities. As digital assets gain value and use, the tax rules governing crypto gambling have become clearer and more rigorously enforced. Anyone who wins or earns crypto through gambling must understand how those winnings fit into current tax laws.
In 2025, new reporting standards and IRS forms highlight the need for accurate recordkeeping and honest reporting. The tax treatment of crypto gambling involves both income and capital gains, depending on how the assets are used after a win. Learning how these rules apply helps individuals stay compliant and avoid unexpected tax issues later.
Crypto gambling winnings are taxed as ordinary income and must be reported on your tax return.
The IRS treats crypto gambling winnings as ordinary income. Players must report the fair market value of the digital assets they receive at the time of the win. This applies to all forms of crypto prizes, whether earned through casino games, sports bets, or esports wagers.
Introducing the $JB: Empowering the Future of Crypto Gaming and diving into a crypto gambling platform that makes it easy for users to play and withdraw in digital currencies. However, tax obligations remain the same as with cash winnings. Each win adds to a player’s total taxable income for the year.
If a player later sells or trades the crypto they won, any change in value may create a capital gain or loss. Accurate records of each transaction help determine the correct tax owed. Reporting all gambling income on Form 1040 keeps players compliant with federal tax rules.
The fair market value of noncash crypto prizes counts as taxable gambling income
The IRS treats crypto prizes from gambling as taxable income. If a player wins digital coins or tokens instead of cash, the value of those assets still counts as income for tax purposes. The amount reported equals the fair market value of the crypto at the time the player gains full control over it.
This rule applies even if the winner keeps the crypto instead of converting it to dollars. The fair market value establishes the base cost for future capital gains calculations once the player sells or trades the asset.
Taxpayers must include this value as “other income” on their federal tax return. Accurate records of the date, value, and source of each prize help avoid reporting mistakes. As a result, understanding how to determine fair market value helps players meet tax obligations and reduce future disputes.
Any gains from converting or disposing of crypto winnings trigger capital gains tax
After a player receives crypto as gambling winnings, the value of that crypto at the time of receipt counts as ordinary income. However, once that person sells, trades, or converts the crypto into another asset or currency, a capital gains event occurs.
The IRS treats this transaction the same way it treats the sale of stocks or other property. The gain or loss equals the difference between the crypto’s value at the time of receipt and its value at the time of disposal.
If the value rises before the sale, the taxpayer owes capital gains tax on the profit. If the value drops, it may result in a deductible loss. The tax rate depends on how long the person held the crypto before disposal—short-term rates apply to assets held for one year or less, while long-term rates apply to assets held longer.
Report all gambling winnings, including crypto, on IRS Form 1040 as “other income”
The IRS treats all gambling winnings as taxable income. This rule covers traditional bets, casino games, lotteries, and crypto-based wagers. Taxpayers must include the fair market value of any digital asset or token received as winnings.
Individuals record these amounts on Schedule 1 of Form 1040 under the “Other income” section. The total from Schedule 1 then transfers to the main Form 1040. This process applies even if the payer does not issue a Form W‑2G.
Failing to report winnings may lead to penalties or interest on unpaid taxes. Therefore, taxpayers should keep clear records of each win and its value at the time received. Accurate reporting helps avoid future tax issues and supports compliance with federal rules.
Track all crypto gambling transactions to accurately report income and capital gains
Accurate records help taxpayers stay compliant with tax laws. Each crypto bet, win, or loss may create a taxable event, so clear documentation supports correct reporting. The IRS expects detailed records of every transaction, including date, amount, and fair market value in U.S. dollars.
Players should record both the value of crypto won and any later sale or trade. If the value of the crypto changes before disposal, that difference may count as a capital gain or loss. Proper tracking helps determine the correct tax owed.
Transaction logs from wallets or exchanges can provide useful data. However, taxpayers should also keep personal notes to confirm what occurred. These records make it easier to complete IRS forms such as Form 8949 and Schedule D, which cover capital gains and losses.
Conclusion
Tax rules for crypto gambling in 2025 treat digital winnings much like traditional ones. The IRS views them as taxable income, and any later increase in value creates a separate capital gain. This means players must track both the fair market value at the time of receipt and any later sale or trade value.
Accurate records help avoid mistakes. Each transaction, from the initial win to any later exchange, should include the date, value, and type of asset. Clear documentation supports correct reporting and prevents issues during tax filing.
Those who handle crypto gambling responsibly can stay compliant and avoid penalties. Understanding how income and capital gains apply allows taxpayers to meet their obligations with confidence and accuracy.
