Bitcoin ETF Tax in the USA: A Practical Guide

TL;DR. A US spot Bitcoin ETF is a grantor trust, so for tax purposes you own the bitcoin itself, not shares in a fund. That has one consequence almost nobody expects: the trust sells bitcoin every day to pay its fee, so you realise a small capital gain every year even when you never touch the position. Your own sales arrive on Form 1099-B and go on Form 8949, then Schedule D. Long-term gains are taxed at 0%, 15% or 20% plus the 3.8% net investment income tax; short-term gains go at ordinary rates topping out at 37%. Wash-sale rules apply. Futures funds such as BITO work differently, and the 60/40 rule you've read about lives inside the fund, not on your return.

The taxable event you didn't ask for

Start with the document that settles it. The FY2025 10-K of BlackRock's iShares Bitcoin Trust ETF spells out the mechanics plainly:

"Shareholders will be treated, for U.S. federal income tax purposes, as if they directly owned a pro rata share of the underlying assets held in the Trust ... and as if they directly incurred their respective pro rata shares of the Trust's expenses."

Everything else follows. You don't own a fund that owns bitcoin; for tax purposes you own bitcoin, and the trust is a bookkeeping layer. So when the trust sells coins, you sold coins:

"If the Trust sells bitcoin (for example to generate cash to pay fees or expenses) ... a Shareholder generally will recognize gain or loss in an amount equal to the difference between (a) the Shareholder's pro rata share of the amount realized by the Trust upon the sale and (b) the Shareholder's tax basis for its pro rata share of the bitcoin that was sold."

The sponsor's fee accrues daily and is paid out of the trust's bitcoin, so the selling runs continuously whether or not you place an order. There are no distributions and no dividends, and the string "1099" doesn't appear anywhere in the filing.

What it actually costs

The 10-K puts numbers on it. The iShares sponsor's fee runs at an annualised 0.25% of net asset value, and for the year ended 31 December 2025 it came to $174,741,906 against average weighted assets of $69,896,349,409. Selling bitcoin to cover it produced a net realised gain of $41,985,070, which belongs to shareholders.

That's 0.060% of assets, so a $10,000 position held for the whole of 2025 picked up roughly $6 of taxable capital gain. FY2024 was busier: a $18,811,883 gain on average weighted assets of $21,516,137,559, or about $9 per $10,000.

Small, but not zero and not optional. Two details make it worse than it looks:

• You get the gain but not the deduction. The 10-K adds that most trust expenses are miscellaneous itemised deductions, which individuals generally cannot deduct. On the $10,000 example, about $25 left as fees, roughly $6 arrived as taxable gain, and nothing came back as a write-off.
• It changes your answer on page one of Form 1040. The 1040 asks whether you disposed of "a digital asset (or a financial interest in a digital asset)". The 10-K says shareholders must report "the receipt, acquisition, sale, or exchange of any financial interest in digital assets, which includes a Shareholder's interest in bitcoin held by the Trust". Holding a spot ETF all year and selling nothing is not automatically a "No".

One gain you can ignore: the 10-K reports a far larger realised gain from bitcoin sold to fund redemptions ($2.1bn in 2025), but says those "are expected to be treated as incurred by the Shareholder that is being redeemed". Redemptions are done by authorised participants, so only the expense slice touches every holder. For the plumbing, see what a Bitcoin ETF is.

Federal rates for tax year 2026

These are the figures from Rev. Proc. 2025-32, for taxable years beginning in 2026. Every threshold below is measured against taxable income, not gross income and not MAGI; the 2026 standard deduction of $16,100 single and $32,200 joint comes off first.

Short-term gains, meaning anything held one year or less, stack into ordinary income:

Rate (tax year 2026)	Single, taxable income	Married filing jointly
10%	Up to $12,400	Up to $24,800
12%	$12,400 to $50,400	$24,800 to $100,800
22%	$50,400 to $105,700	$100,800 to $211,400
24%	$105,700 to $201,775	$211,400 to $403,550
32%	$201,775 to $256,225	$403,550 to $512,450
35%	$256,225 to $640,600	$512,450 to $768,700
37%	Over $640,600	Over $768,700

Long-term gains get their own much flatter schedule, expressed in the Rev. Proc. as a maximum zero-rate amount and a maximum 15% rate amount:

Long-term rate (tax year 2026)	Single and other individuals	Married filing jointly
0%	Taxable income up to $49,450	Up to $98,900
15%	$49,450 to $545,500	$98,900 to $613,700
20%	Over $545,500	Over $613,700
Net investment income tax	Extra 3.8% once modified AGI passes $200,000 single or head of household, $250,000 married filing jointly, $125,000 married filing separately

The NIIT numbers come from a different place, and that matters. The IRS calls them statutory threshold amounts, and they don't appear in Rev. Proc. 2025-32 at all, because unlike the brackets they aren't adjusted for inflation. They have sat at the same level since 2013, so every year of wage growth quietly pulls more people over the line.

Stack it up and the federal ceiling is 23.8% long-term and 40.8% short-term. State tax sits on top of both.

The one-year line

Publication 550 puts the counting rule bluntly: begin counting on the day after you acquired the property, and the day you dispose of it is part of the holding period. More than one year is long-term. The IRS example is a purchase on 31 January 2024 sold on 29 January 2025, which is short-term, against the same purchase sold on 6 February 2025, which is long-term.

The gap between 40.8% and 23.8% is the largest number in this article and it can turn on a few days. If you buy in instalments, every purchase runs its own clock. Selling the oldest lots first puts more of the gain in the long-term column, but only if your broker is told which lots to use before the trade settles. Defaults are usually first-in-first-out, which is often what you want. Check rather than assume.

How it reaches your return

For the shares themselves the route is ordinary and boring, which is the point. Publication 550 confirms that a broker who sells stocks, bonds or mutual funds for you sends Form 1099-B, and that the 2025 form was due by 16 February 2026. From there:

1. Form 1099-B arrives with proceeds and, for covered lots, cost basis.
2. Each disposal goes on Form 8949, split short-term and long-term.
3. Schedule D totals the halves and nets gains against losses.
4. The net figure carries to Form 1040; a net loss is claimed on line 7a.

The grantor-trust gain doesn't arrive that tidily. The 10-K says only that "the Trust or the appropriate broker will file certain information returns with the IRS, and provide certain tax-related information to Shareholders". In practice issuers publish an annual tax statement with per-share factors, and better brokers fold it into the consolidated statement. If yours doesn't, the issuer's tax page is where to look before you file.

Why you won't get a Form 1099-DA

This is the most common question of the 2026 filing season, and the answer has two parts.

Form 1099-DA is the digital asset reporting form for brokers. Its 2026 instructions define a broker as "any person who, in the ordinary course of a trade or business, stands ready to effect sales of digital assets to be made by others", and require gross-proceeds reporting for every sale of digital assets effected for customers after 2025.

Your ETF shares aren't digital assets. They're securities that track one, so selling them is a sale of stock and the form is Form 1099-B, exactly as for an S&P 500 fund. That's part one.

Part two is what most guides skip. The same instructions carry a rule for widely held fixed investment trusts: "For digital asset sales, trustees and middlemen must report ... trust sales proceeds ... attributable to a trust interest holder (TIH) for the calendar year on Form 1099-DA or Form 1099-B", while a redemption of the interest itself goes on Form 1099-B. So the IRS has written rules contemplating a trust's own bitcoin sales being pushed out to holders, on either form. The iShares 10-K never uses the phrase, so don't treat it as settled for any given fund. Treat it as the reason a 1099-DA in your inbox wouldn't automatically be an error.

Futures ETFs are taxed somewhere else entirely

A lot of writing claims holders of BITO are subject to section 1256, get a 60/40 split of gains, face year-end mark-to-market, and pay some blended rate. That's wrong at the investor level, and wrong in a way that will make you misreport.

ProShares Bitcoin ETF is a registered fund, not a trust. Its summary prospectus says it gains exposure partly through "a wholly-owned subsidiary of the Fund organized under the laws of the Cayman Islands", and that it "intends to qualify for treatment as a regulated investment company ('RIC') under Subchapter M". The tax section is one sentence: "Income and capital gains distributions you receive from the Fund generally are subject to federal income taxes ... The Fund intends to distribute income, if any, monthly, and capital gains, if any, at least annually."

Section 1256 is real, but it operates a level below you. The ProShares statement of additional information says the treatment of regulated futures contracts "entered into by the Fund" is governed by section 1256, that gains on them are "considered to be 60% long-term and 40% short-term", and that contracts "held by the Fund at the end of each taxable year" are marked to market. Every one of those sentences has the fund as its subject.

What reaches you is the output, and the SAI is explicit: "Taxes on distributions of capital gains are determined by how long the Fund owned the investments that generated them, rather than how long a shareholder has owned his or her shares." Capital gain dividends are long-term in your hands, distributions of net short-term gain are ordinary income, and when you sell the shares your own holding period sets the character of that gain.

The practical difference is timing: a monthly distributor hands you taxable income on its schedule, not yours. More in spot versus futures Bitcoin ETFs.

Three ways to hold bitcoin, three regimes

	Spot ETF (IBIT, FBTC)	Futures ETF (BITO)	Bitcoin in your own wallet
Legal form	Grantor trust	RIC with a Cayman subsidiary	Property held directly
Treated as owning	Your pro rata share of the bitcoin	Shares in a fund	The bitcoin
Taxed in a year you don't trade?	Yes, a small gain from fee sales	Yes, via distributions	No
Distributions	None	Income monthly, gains at least annually	None
Broker form	1099-B plus an issuer tax statement	1099-DIV and 1099-B	1099-DA from a US digital asset broker
Wash-sale rule	Applies	Applies	Not to the coins themselves
Where section 1256 bites	Nowhere	Inside the fund	Nowhere

Wash sales

Publication 550 defines a wash sale as selling "stock or securities" at a loss when, within 30 days before or after, you buy substantially identical ones, acquire them in a fully taxable trade, acquire a contract or option to buy them, or acquire them for your IRA or Roth IRA. Buying through a spouse or a corporation you control counts too. The disallowed loss isn't gone: you add it to the basis of the replacement shares, and the old holding period carries across.

Bitcoin ETF shares are securities, so the rule applies in full. Bitcoin itself is property rather than a security, which is why direct holders have been able to sell at a loss and rebuy immediately. Congress has looked at closing that gap, so treat it as a feature that could be removed.

Whether two different spot funds are "substantially identical" is unsettled; the IRS hasn't ruled on it. The pairings and their risk are in tax-loss harvesting with Bitcoin ETFs, and our fund comparison and fund overview show how the candidates differ.

Losses you can actually use

Capital losses first offset gains of the same character, then the other character, then ordinary income. The ordinary-income piece is capped: the IRS allows the lesser of your excess loss or $3,000, and $1,500 if married filing separately. Anything above that carries forward with its character intact.

That cap hasn't moved in decades. A $40,000 loss with no gains to absorb it shelters $3,000 of salary this year and leaves $37,000 queued up, earning nothing while it waits.

State tax

This guide deliberately doesn't print state rates, because they change more often than federal ones and a stale table is worse than none. Two things are worth knowing.

A state with no income tax isn't automatically a state with no capital gains tax. Washington charges 7% on the sale of long-term capital assets including stocks, above a standard deduction that is indexed annually and stood at $278,000 for 2025, and the Department of Revenue has published notice of new tiered rates.

And most states don't copy the federal long-term preference, so holding-period planning that saves 17 points federally may save nothing at home. Check your state's department of revenue before assuming a combined rate.

Death and gifts

Publication 551 sets out both rules, and they point in opposite directions.

Inherited property generally takes a basis equal to its fair market value at the date of death, or on the alternate valuation date if the executor elects it. An heir who sells the next day has essentially no gain, however large the unrealised gain was. On a long-held position that's the largest single tax effect available, and using it means doing nothing.

Gifts work the other way: the recipient takes over the donor's adjusted basis, so the gain travels with the shares. There's a trap when the position is underwater. If fair market value is below the donor's basis, the recipient uses the donor's basis to figure a gain and the lower value to figure a loss, which can produce a sale with neither. Sell losers yourself, take the loss, gift the cash.

Rev. Proc. 2025-32 sets the 2026 annual gift exclusion at $19,000 per recipient, above which a gift tax return is due, and the basic exclusion for estate and gift tax at $15,000,000.

All of this applies to a taxable account. Inside a Roth IRA there are no annual grantor-trust gains, no 1099-B to reconcile, no wash-sale bookkeeping and no tax on the eventual sale, provided the distribution rules are met. The wrapper often matters more than the fund, which is the subject of Bitcoin ETFs in a Roth IRA.

A necessary caveat

This is a guide, not tax advice, and it can't be tailored to you. Filing status, state, other income, the account the shares sit in, and whether you're a US person at all change the answer. Every figure here is tied to a document listed below, so check the year rather than trust ours; rules also move between writing and filing. Talk to someone who can see your whole return.

FAQ

Sources and further reading

• iShares Bitcoin Trust ETF, Form 10-K, FY2025 (SEC, CIK 1980994). Grantor trust treatment, expense sales, fee and realised gain figures.
• IRS Rev. Proc. 2025-32. Rate tables, capital gains thresholds, standard deduction, gift and estate exclusions for 2026.
• IRS Publication 550 (2025). Holding period, wash sales, Form 1099-B timing.
• Instructions for Form 1099-DA (2026). Broker and digital asset definitions, WHFIT reporting.
• IRS Publication 551. Inherited property and property received as a gift.
• ProShares Trust statement of additional information. RIC status, section 1256 at fund level, taxation of distributions.
• Internal: Bitcoin ETF in a Roth IRA, tax-loss harvesting, spot vs futures ETFs, IBIT review.