Crypto betting — using digital assets such as Bitcoin or Ethereum to place wagers online — has become increasingly popular in recent years. While many players focus on the thrill and potential profits, few realize that their wins and losses may be subject to U.S. taxation. The Internal Revenue Service (IRS) treats cryptocurrencies as property, while gambling winnings are treated as taxable income. When combined, these rules create a unique set of tax obligations that every crypto bettor needs to understand.
This guide explains, in simple terms, how the IRS views crypto betting, how to calculate your winnings and losses, and how to stay compliant when reporting your taxes.
1. Why crypto betting is taxable
The IRS applies two key principles. First, cryptocurrencies are classified as property. This means that whenever you dispose of crypto, whether by selling, trading, or spending—it can trigger a capital gain or loss. You must track your cost basis (what you originally paid) and the fair market value when you dispose of it.
Second, gambling winnings of any kind are considered income. The IRS makes it clear that gambling winnings are fully taxable and must be reported on your tax return. This includes online casino wins, poker games, sports betting, and crypto gambling.
When you combine these two rules, things get complicated. Winning crypto in a bet counts as gambling income, but later, when you sell or trade that crypto, you may also generate a capital gain or loss. In other words, crypto betting can result in two separate taxable events.
2. How crypto betting winnings are treated
Let’s look at an example to see how this works in practice. Suppose you wager 0.10 BTC when Bitcoin is valued at $40,000. That means your stake is worth $4,000 at the time of the bet. You win 0.25 BTC when Bitcoin is worth $42,000, which equals $10,500 in fair market value.
When you receive that 0.25 BTC, the IRS treats its value—$10,500 as taxable gambling income. You would include this amount as “other income” on your tax return. Later, if you sell that same crypto when Bitcoin’s value rises to $50,000, the 0.25 BTC would now be worth $12,500. Since your cost basis was $10,500, you’d report a $2,000 capital gain.
In summary, you owe income tax on the $10,500 at the time you won and capital gains tax on the additional $2,000 when you sold or traded it.
3. How losses work
Losses in gambling have special rules. The IRS allows you to deduct gambling losses only if you itemize deductions on your return and only up to the amount of your reported winnings. If you won $10,000 during the year but lost $7,000, you can deduct up to $7,000 in losses. You cannot deduct more than your winnings, and you cannot use gambling losses to offset other types of income such as wages or investment profits.
For crypto betting, you must record the fair market value of your wagers and losses in U.S. dollars at the time they occurred. These figures are necessary if you plan to claim gambling losses. However, if you take the standard deduction instead of itemizing, you cannot claim any gambling losses at all.
It’s also worth noting that “professional gamblers” may have different rules, but this classification is rare and usually applies only to individuals who gamble as a full-time business.
4. How to report on your tax return
You must report your crypto betting activity properly to remain compliant. The fair market value of any crypto you win must be reported as taxable income in U.S. dollars. Most taxpayers list this on Form 1040, Schedule 1, under “Other income.”
If you later dispose of the crypto, the gain or loss from that transaction should be reported on Form 8949 and Schedule D, just as you would for stocks or other property. Your cost basis is the fair market value of the crypto at the time you won it.
If you itemize deductions, you can include gambling losses on Schedule A, but again, only up to the amount of your gambling winnings. You must also keep records of all your bets, wins, and losses, along with the corresponding crypto values in dollars at those times.
Finally, remember that many U.S. states also tax gambling winnings and capital gains, so you may need to report this income at the state level as well.
5. Why crypto betting is more complex than traditional gambling
Crypto betting introduces several extra layers of complexity.
First, cryptocurrency prices fluctuate constantly. The moment you win a bet, you must record the U.S. dollar value of your crypto at that time, because that figure determines your taxable income. When you later sell or trade that same crypto, the price may have changed, creating a capital gain or loss.
Second, you may face two taxable events from one activity: income tax when you win and capital gains tax when you later dispose of the asset. Traditional gamblers don’t encounter this double-layer issue.
Third, many crypto casinos do not withhold taxes or issue official tax forms, unlike regulated U.S. casinos that may send a W-2G. That means it’s entirely your responsibility to calculate and report your tax obligations accurately.
Fourth, accurate record-keeping becomes essential. You must track when you placed each wager, how much crypto was involved, its U.S. dollar value, and what happened afterward. Without this data, it’s nearly impossible to calculate taxes correctly.
Finally, because many crypto betting sites operate offshore or under loose regulation, the IRS still expects you to report any winnings as U.S. income, regardless of where the site is located.
6. Steps to stay compliant
To simplify your tax life, keep detailed records of all transactions related to your crypto betting. Write down dates, amounts, and the value of your crypto in U.S. dollars at the time of each bet, win, or loss.
Always convert your crypto values to U.S. dollars using a reliable exchange rate for the exact date and time of each transaction. This ensures accurate reporting and protects you if the IRS asks for documentation.
Separate your ordinary gambling income (the fair market value when you won) from any capital gains that occur later. This distinction helps prevent double-counting or underreporting.
If you plan to deduct losses, be prepared to itemize and keep proof of your losses, such as bet histories or screenshots from your betting platform.
You should also check your state’s rules, as some states handle gambling and crypto differently.
Finally, consider hiring a tax professional who understands cryptocurrency taxation. A qualified preparer can help you file correctly and minimize the risk of IRS penalties.
7. Common pitfalls and red flags
Many taxpayers make similar mistakes when dealing with crypto betting. The most frequent issue is failing to report winnings, particularly when no W-2G or tax form is issued. The IRS still requires you to report all gambling income, even from unregulated or foreign websites.
Another common mistake is mis-valuing the crypto at the time of receipt. If you record the wrong dollar value, your taxable income and later capital gains will both be inaccurate.
Some people forget that their crypto winnings can continue to fluctuate in value. If you later sell at a higher price, you must report the gain.
Others try to claim gambling losses without proper documentation, which the IRS can easily reject. Always keep detailed records.
Lastly, using offshore or anonymous betting platforms can raise red flags. The IRS has warned U.S. taxpayers about unlicensed gambling sites and may scrutinize accounts that involve crypto transfers from such sources.
8. The “professional gambler” exception
A small number of individuals may qualify as professional gamblers if gambling is their primary source of income and they conduct it as a business. In these rare cases, winnings and losses may be reported on Schedule C, allowing certain deductions for related expenses.
However, achieving professional gambler status is difficult and often involves legal challenges. For most people who casually wager crypto, the standard rules for gambling income and itemized loss deductions apply.
9. State and local tax considerations
Nearly all U.S. states impose income tax, and many tax gambling winnings as well. Some also tax capital gains on crypto transactions. Because rules differ from state to state, you should review your local laws or consult a CPA to ensure full compliance.
For example, states like New York and California generally tax all forms of gambling income, while others such as Florida and Texas do not have a state income tax at all. Knowing your state’s approach can help you plan for potential liabilities.
10. Why the IRS is paying attention
The IRS has publicly emphasized its focus on digital assets. Cryptocurrency transactions must be reported, and the agency has increased enforcement efforts in recent years. The IRS’s Criminal Investigation division has also issued warnings urging taxpayers to use legal, licensed betting platforms and to report all winnings.
Because crypto betting often involves anonymous wallets and offshore sites, it offers limited transparency. That lack of visibility makes it a natural target for tax enforcement. Anyone engaging in crypto gambling should assume the IRS is monitoring digital asset activity and act accordingly.
11. Planning tips
Keep meticulous records. It may seem tedious, but noting down every transaction date, crypto amount, and fair market value will save you headaches later.
Consider the timing of your conversions. Because crypto prices are volatile, when you choose to sell or exchange your winnings can significantly affect your final tax bill.
Stay up-to-date on tax laws. Regulations for both crypto and gambling evolve quickly, and new guidance may change your reporting obligations.
Be mindful of “phantom income.” Even if you never cash out your crypto winnings, the IRS still treats the value you received as taxable income.
If you gamble frequently, consult a tax professional each year. They can help you determine whether you’re better off itemizing, how to record your transactions, and whether state rules add extra complexity.
Most importantly, use only legal, regulated platforms. Betting with unlicensed offshore sites may violate U.S. law and draw unwanted scrutiny from authorities.
12. Final thoughts
Crypto betting combines two highly regulated areas—digital assets and gambling—and that means extra care is needed. The IRS treats your crypto winnings as taxable income at the time you win them, and any later sale or exchange may trigger a capital gain or loss. Losses can be deducted only up to the amount of your winnings if you itemize.
Keeping good records, understanding when taxable events occur, and reporting accurately are essential to staying on the right side of the law. Although managing taxes on crypto betting may seem complicated, a bit of organization and professional guidance can make the process far smoother.
By approaching crypto betting with awareness and responsibility, you can enjoy the excitement of the game without worrying about unpleasant surprises from the IRS later on.
Frequently Asked Questions
If I bet with crypto and lose, can I deduct the loss?
Yes, but only if you itemize deductions and only up to the total amount of your gambling winnings. You must also have accurate records of the value of your crypto at the time of each loss.
Does using a crypto casino overseas exempt me from U.S. taxes?
No. U.S. taxpayers must report all worldwide income, including gambling winnings earned abroad or through offshore crypto platforms.
What if I never convert my winnings to U.S. dollars?
You still owe tax on the fair market value of the crypto at the time you received it. The IRS taxes income based on value received, not whether you cash it out.
If I deposit fiat, convert to crypto, and then bet, is that taxable?
The act of buying crypto is not taxable by itself. Tax applies when you win or dispose of crypto. However, you must track the dollar value of your purchases for cost-basis purposes.
Can I treat my crypto wagering losses as capital losses?
No. Gambling losses are treated separately under gambling rules. They can only offset gambling winnings, not investment gains or other income. Capital gains or losses apply only when you sell or trade the crypto asset itself.
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