How Cryptocurrency Is Taxed in the United States
The IRS treats cryptocurrency as property, not currency. This means every time you sell, trade, or spend crypto, it is a potentially taxable event. Understanding these rules is essential to avoid unexpected tax bills and penalties.
Taxable Crypto Events
- Selling crypto for cash (USD or other fiat)
- Trading one cryptocurrency for another
- Using crypto to purchase goods or services
- Receiving crypto as payment for work or services (taxed as ordinary income)
- Mining or staking rewards (taxed as ordinary income when received)
- Airdrops (taxed as ordinary income at fair market value)
Non-Taxable Crypto Events
- Buying crypto with fiat currency and holding it
- Transferring crypto between your own wallets
- Gifting crypto (but gift tax rules may apply for large gifts)
- Donating crypto to a qualified charity
Capital Gains Tax Rates on Crypto
If you held the crypto for more than one year before selling, you pay long-term capital gains rates (0%, 15%, or 20% depending on your income). If held for one year or less, you pay short-term rates, which are the same as your ordinary income tax rate.
Reporting Crypto on Your Tax Return
Report crypto dispositions on Form 8949 and Schedule D. Starting in 2025, crypto exchanges are required to issue Form 1099-DA to report your transactions to both you and the IRS. Keep detailed records of your cost basis for every transaction.
Tax-loss harvesting works with crypto too. Unlike stocks, the wash sale rule does not currently apply to cryptocurrency, so you can sell at a loss and immediately rebuy to offset gains.
