Do you pay taxes on stablecoins? What to know for 2026
Nov 17, 2025・6 min read
Stablecoins have captured significant attention in the crypto market – but not without controversy. From questions about stablecoin issuer’s reserves to failed projects like Meta’s Libra and disastrous depegging events like Terraform Labs’ UST, concerns about the safety and legitimacy of these digital assets persist.
Still, with a current market cap of roughly $308 billion (at the time of writing), stablecoins play a vital role in the cryptocurrency economy. Even major fintech firms like PayPal and centralized exchanges (CEXs) like Coinbase offer these digital assets to crypto traders. Because stablecoins are designed to hold a “stable” price, some crypto traders wonder if they must report them to the IRS. While using USDT to avoid taxes won’t work, not every stablecoin transaction triggers capital gains taxes.
In this guide, we’ll explain how stablecoin taxes work, and how to report swaps and stablecoin payments.
What are stablecoins?
Stablecoins are cryptocurrencies that mirror the value of real-world assets, typically fiat currencies like the U.S. dollar or euro. They provide traders with a web3-native asset without the price volatility of other cryptocurrencies like Bitcoin (BTC) or Ethereum (ETH). By maintaining a 1:1 “peg” with a traditional financial asset, stablecoins bring predictability, convenience, and liquidity to the crypto ecosystem. Because of this, they’re common in decentralized applications (dApps).
Most stablecoins exist as tokens on blockchains and rely on automated smart contracts for issuance and transfers. In some cases, centralized institutions maintain a stablecoin’s value with an equivalent amount of cash or cash equivalents in a bank (“reserve-backed stablecoins”). Conversely, some cryptocurrencies like Dai (DAI) use intermediary-free protocols like decentralized autonomous organizations (DAOs) to maintain cryptocurrency treasuries that back each stablecoin’s value.
In contrast to both centralized and decentralized reserve models, algorithmic stablecoins are more experimental. They use code and market incentives instead of collateral to maintain their value. These stablecoins have attracted the most regulatory scrutiny, particularly after the multi-billion-dollar collapse of Terraform Labs’ UST.
Despite the differences in how they’re backed – or whether they’re backed at all – all stablecoins function like any other peer-to-peer (P2P) digital asset. Today, hundreds of stablecoins exist across various blockchains, but only a few are highly liquid and widely used in crypto markets:
Tether (USDT)
Despite multiple controversies and lawsuits over the years, Tether Limited’s USDT is the most actively traded stablecoin and often has the highest volumes in cryptocurrency. When Tether (USDT) began in 2014, it was only available within the Bitcoin ecosystem, but it gained significant traction in decentralized finance (DeFi) after expanding on smart contract chains like Ethereum. Although Tether Limited publishes reserve data to show it backs every USDT with cash or cash equivalents, some institutions continue to scrutinize its transparency. Despite these concerns, USDT has become a major part of the cryptocurrency ecosystem.
USD Coin (USDC)
Like USDT, USDC is a reserve-backed stablecoin that mirrors the U.S. dollar. A key distinction between USDC and USDT is that USDC’s parent companies – Circle and Coinbase – are based in the United States. Because of this, some investors feel more confident about the level of federal oversight of USDC’s operations. Circle frequently releases attestations to show its current reserve status relative to USDC issuance. While USDC is most popular on Ethereum, it’s also available on other blockchains like Solana (SOL), Algorand (ALGO), and Avalanche (AVAX).
Dai (DAI)
DAI is another USD-pegged stablecoin backed by reserves, but it’s issued and maintained by the decentralized protocol MakerDAO rather than a centralized institution. Unlike fiat-backed stablecoins, DAI holds cryptocurrencies like Ethereum in its smart contract-governed treasury. Anyone who wants to generate DAI in their Ethereum-based wallet interacts with the MakerDAO protocol by taking out an overcollateralized loan on their cryptocurrency deposit. In this system, users lock more cryptocurrency than the amount of DAI they want to borrow and repay their loan with interest over time. This overcollateralization has kept DAI stable since its launch in 2017.
Are stablecoin sales reported to the IRS?
Beginning with 2025 activity, new IRS information-reporting rules require digital asset brokers to issue Form 1099-DA for every taxable sale or exchange of digital assets, including certain stablecoins. This means the IRS may receive information about your sales and exchanges of stablecoins.
However, not every stablecoin transaction will be reported on a Form 1099-DA. Some transactions qualify for the IRS’s limited-scope exemption, such as designated sales of $10,000 or less per customer or stablecoin-to-non-stablecoin digital asset exchanges.
Whether the IRS receives a Form 1099-DA for your stablecoin activity does not change the underlying tax treatment. Taxpayers are still required to report all taxable events on their own returns.
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Are stablecoins taxable?
Stablecoins may mimic the prices of fiat currencies, but they don’t share the same legal status. The IRS treats stablecoins as property rather than currency. This means that stablecoin transactions can create capital gains, losses, or income depending on how they are used.
Trading stablecoins for other cryptocurrencies
If you’re wondering whether converting crypto to USDC is taxable, the short answer is yes. Converting crypto to or from a stablecoin is a taxable event. Whether you use a stablecoin to buy a digital asset like Bitcoin or exchange Bitcoin for a stablecoin, each trade represents a disposition that must be reported on your tax return.
Your gain or loss equals the difference between the amount realized from the sale or exchange and your cost basis in the asset you disposed of. While stablecoins are generally less volatile than other digital assets, even small price fluctuations can create differences in fair market value (FMV), leading to taxable gains or losses.
If you hold a crypto asset for more than one year before selling or exchanging it, any gain is taxed at the long-term capital gains rate, which currently ranges from 0% to 20% depending on income. In contrast, assets held one year or less are taxed at ordinary income rates, which may be higher.
If your trade results in a loss, it must still be reported. Crypto losses can offset other capital gains, and up to $3,000 of net capital losses may be deductible each year against ordinary income.
Converting one stablecoin to another
Exchanging one stablecoin for another or converting stablecoins to fiat currency may seem trivial due to their 1:1 ratio, but even small deviations in value can create a capital gain or loss. While extreme depegging events, such as USDC briefly dropping to $0.87 during Silicon Valley Bank’s bankruptcy, are rare, minor price differences can still result in taxable gains or losses. Unless future tax law changes specifically address stablecoins, investors should continue to report these transactions and calculate any related gains or losses.
Spending stablecoins for goods or services
Spending stablecoins on goods or services usually doesn’t involve large differences between the stablecoin’s FMV and the original acquisition cost. Still, slight variations in value can result in taxable gains or losses. Each disposition is considered a taxable exchange, which means any gain or loss must be reported. To account for this and to maintain accurate records, taxpayers should keep detailed documentation of each transaction, including date, value, and purpose.
Receiving stablecoins as payment
When stablecoins are received as wages or compensation, the IRS treats the value received as ordinary income at the time of receipt, measured based on the FMV in U.S. dollars. Employees receive a Form W-2, and the value of the stablecoins is included in taxable wages subject to income and payroll taxes.
Independent contractors or freelancers are typically issued a Form 1099-NEC when total payments from a client amount to at least $600 during the year. These payments are generally reported on Schedule C (Form 1040) as self-employment income, subject to both income and self-employment taxes. If the 1099-NEC relates to activity that isn’t part of a trade or business (for example, one-off consulting work or a personal reimbursement), the amount may instead be reported as “Other income” on Schedule 1.
Can you deduct losses from stablecoins that lose their value?
Stablecoin losses are uncommon, but they can happen when a project collapses, loses its peg, or becomes worthless. If a stablecoin is sold, exchanged, or otherwise disposed of for less than its cost basis, the loss is treated as a capital loss and reported on Form 8949 and Schedule D.
However, simply holding a stablecoin that has lost market value does not create a deductible loss until a taxable event occurs. In more serious cases, such as when a stablecoin project collapses due to fraud or insolvency, losses may qualify for other types of deductions under Internal Revenue Code §165, depending on the facts and whether the investment was profit-motivated. Taxpayers should maintain detailed records and consult a qualified crypto CPA to determine the appropriate treatment.
Stay on top of stablecoins with CoinTracker
CoinTracker makes it easy to create an IRS-compliant record of your crypto transactions with Portfolio Tracker. After linking exchange APIs, uploading CSV files, or adding wallet addresses, CoinTracker instantly generates real-time reports with your complete crypto history – including gains, losses, and other taxable crypto activity. You can also import this data into IRS forms like Form 8949 and Schedule D to share with your CPA or upload to TurboTax or H&R Block.
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Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.