When you sell cryptocurrency, you are liable for federal capital gains taxes, similar to selling other assets, such as stocks.

How and When Is Crypto Taxed?

Crypto taxes are based on two factors:

• Duration of Ownership: Crypto sold after holding for more than a year is taxed at lower rates compared to short-term sales.

• Income Level: The higher your annual taxable income, the higher your tax rate.

  
  

You only incur taxes when you sell cryptocurrency, whether for cash or for another cryptocurrency. If you bought $100 worth of crypto that is now valued at $200 and you still own it, you aren’t taxed until you sell.

Short-Term Capital Gains Tax

Cryptocurrency held for a year or less before selling is subject to short-term capital gains tax. These are taxed as ordinary income, similar to wages. Depending on your income, short-term gains are taxed across different brackets, ranging from 10% to 37%.

For instance, a single filer pays 10% on the first $11,000 of income and 12% on income up to $44,725. The tax brackets for 2024 and 2023 vary slightly, affecting your final tax bill. You can estimate taxes with our crypto tax calculator.

Long-Term Capital Gains Tax

Cryptocurrency held for over a year is subject to long-term capital gains tax, which typically has lower rates. Depending on your income and filing status, these rates are generally 0%, 15%, or 20%. Selling crypto after holding it longer can significantly reduce your tax burden.

FAQs on Cryptocurrency Tax

1. Sold Crypto for a Loss?

If you sell crypto at a loss, you can use the losses to offset other gains, potentially lowering your taxable income. Losses exceeding gains can also reduce income by up to $3,000, with remaining losses carried forward to future years.

2. Will Moving Crypto Between Wallets Trigger Tax?

No. Transferring cryptocurrency between wallets that you own is not considered a taxable event.

3. Are Staking or Mining Rewards Taxed?

Yes. Rewards earned from staking or mining are considered taxable income. Other taxable events include receiving crypto for goods or services, airdrops, and buying property using cryptocurrency.

4. Does Crypto-to-Crypto Trading Trigger Taxes?

Yes, trading one cryptocurrency for another is a taxable event.

5. Required Forms

All crypto transactions must be documented on IRS Form 8949 and summarized on Form 1040. You may use tax software that connects to exchanges to help compile the required information.

6. Should I Do This Myself?

While crypto tax software can simplify the process, complex transactions, such as those involving international exchanges or very large volumes, may require professional help.

Extended reading: Italy's Finance Minister Defends Cryptocurrency Tax Hike Amid Internal Party Dispute