How IBIT Is Taxed — What Bitcoin ETF Investors Need to Know

The Short Answer

IBIT is taxed like a stock or ETF. You owe capital gains tax when you sell shares at a profit. Shares held under one year are taxed at your ordinary income rate; shares held one year or longer qualify for lower long-term capital gains rates (0%, 15%, or 20%, depending on income). Your broker sends you a 1099-B, and that's usually all you need.

For most investors, this is dramatically simpler than holding Bitcoin directly.

The Basics — Capital Gains on IBIT

From a tax standpoint, owning IBIT looks very familiar.

iShares Bitcoin Trust (IBIT) is structured as a grantor trust, but for everyday investors it behaves like a regular security. When you sell shares, you realize a capital gain or loss.

Example: buy IBIT at $40, sell at $55 — you have a $15 per-share capital gain.

How that gain is taxed depends on how long you held the shares (see IRS Publication 550 for the full capital gains tax rules):

• Short-term capital gains (held less than 12 months): taxed at your ordinary income rate. Federal brackets currently range from 10% to 37%.
• Long-term capital gains (held 12 months or more): taxed at preferential rates of 0%, 15%, or 20%, depending on your taxable income.

High earners may also owe the 3.8% Net Investment Income Tax (NIIT) on gains if modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).

Your broker tracks your cost basis automatically, applies your chosen accounting method (FIFO, specific lot, etc.), and reports everything on a 1099-B at tax time. No crypto-specific forms, no wallet histories, no blockchain transaction logs to reconcile.

Key point: This is the same tax treatment as selling shares of SPY, AAPL, or any other ETF.

IBIT vs. Holding Bitcoin Directly — Tax Comparison

This is where IBIT's structure really matters — especially for advisors comparing options for clients.

A few important details:

Direct Bitcoin holders face granular reporting. Every sale, swap, or purchase using Bitcoin triggers a taxable event — potentially dozens or hundreds of Form 8949 line items for active traders. You must track cost basis for every lot, often across multiple wallets and exchanges.

IBIT holders have one taxable event: selling shares. Your broker calculates everything and hands you a finished tax form in February. One sale = one line item.

The wash sale tradeoff cuts both ways. Direct Bitcoin holders can currently sell at a loss and immediately rebuy to harvest the tax deduction — no 30-day waiting period. IBIT holders face the standard wash sale rule: sell at a loss and repurchase within 30 days, and the loss is disallowed.

Note: The IRS has proposed extending wash sale rules to digital assets beginning in 2026. This is not yet law, but it's an active area to watch. Some tax professionals also argue that IBIT's grantor trust structure creates ambiguity around wash sale applicability — but following your broker's 1099-B reporting is the safest approach.

For a powerful wash sale workaround, see our guide to tax loss harvesting Bitcoin ETFs.

IBIT in Tax-Advantaged Accounts

One of IBIT's biggest advantages has nothing to do with tax rates — it's where you can hold it.

Traditional IRA and 401(k): IBIT gains grow tax-deferred. You owe no capital gains tax on trades inside the account. Withdrawals in retirement are taxed as ordinary income.

Roth IRA: IBIT gains grow tax-free. If IBIT appreciates significantly over time, qualified withdrawals owe zero tax. For investors seeking long-term Bitcoin exposure, this is one of the most powerful features of the ETF structure.

HSA: Gains grow tax-free if used for qualified medical expenses. Functionally similar to a Roth for eligible spending.

Key point: You generally cannot hold Bitcoin directly in a standard IRA or 401(k) at a major brokerage. Some self-directed IRA providers allow crypto, but it's complex and expensive. IBIT makes Bitcoin exposure accessible inside retirement accounts through any standard brokerage — no special custody arrangements required.

Choosing a Bitcoin ETF for your IRA? See our FBTC vs ARKB comparison for a detailed custody and fee breakdown.

What About the Expense Ratio and Taxes?

IBIT charges a 0.25% annual expense ratio, and there are a few tax nuances worth knowing.

The expense ratio is not tax-deductible for most individual investors. The 2017 Tax Cuts and Jobs Act eliminated the miscellaneous itemized deduction for investment expenses, and this has not changed.

The fee is paid by selling small amounts of Bitcoin inside the fund, which gradually reduces the BTC-per-share ratio. Over time, this slightly lowers your effective exposure and marginally reduces gains when you sell. But the effect is small — not a tax planning lever.

For a deeper breakdown of how this works in Bitcoin terms, see the full discussion on IBIT's expense ratio and fee drag.

Covered call Bitcoin ETFs introduce additional tax complexity through their distributions, which are often classified as return of capital. For a full analysis of the covered call Bitcoin ETF tax implications, including how IBPI's structure compares to spot ETFs like IBIT, see our IBPI explainer. If you sell your own covered calls on IBIT, use our covered call calculator to see break-even and returns in BTC terms before placing a trade.

Key Tax Dates and Forms

• 1099-B: Issued by your broker by mid-February. Reports IBIT sales, proceeds, cost basis, and gains/losses.
• Form 8949 / Schedule D: Where capital gains and losses from your 1099-B flow onto your tax return.
• Tax filing deadline: April 15 (or October 15 with a filing extension).
• Wash sale window: 30 days before or after selling IBIT at a loss. Applies to IBIT and substantially identical securities.

Bottom Line

IBIT's tax treatment is straightforward:

• It's taxed like a stock or ETF
• Capital gains apply only when you sell
• Your broker handles reporting via a 1099-B
• Wash sale rules apply
• Retirement accounts unlock powerful tax advantages not available with direct Bitcoin custody

For investors who want Bitcoin exposure without crypto-specific tax complexity, IBIT's structure is the primary benefit.

Track your IBIT position value →

See how expense ratio fee drag affects your holdings →

Comparing IBIT to holding Bitcoin directly? See our full comparison guide covering taxes, fees, custody, and more.

See how IBIT's fees compare with other Bitcoin ETFs on the comparison page, or compare all 12 spot Bitcoin ETFs side by side.

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