Cryptocurrency transactions are subject to capital gains taxes in the United States, according to IRS guidance. Tax implications vary based on how long an asset was held and the taxpayer’s filing status and income.
Selling cryptocurrency for more than the purchase price typically results in a taxable gain. This also applies to exchanging one digital asset for another. For example, trading bitcoin for ethereum is considered a taxable event if there’s a change in the asset’s value.
Crypto taxes are reported on tax returns for the year the transaction occurred. If a taxpayer sells crypto in 2025, gains or losses are reported on their 2025 tax return, filed in 2026.
Short-term capital gains apply to assets held for one year or less. These are taxed as ordinary income, with rates ranging from 10% to 37%, depending on income and filing status. Frequent traders typically fall into this category.
Long-term capital gains apply to assets held for more than one year, with tax rates at 0%, 15%, or 20%, depending on income. High earners may also owe an additional 3.8% net investment income tax.
Capital gains taxes apply only to the net gain—the difference between the asset’s selling price and its original cost, also known as the cost basis. For example, if crypto was purchased for $2,000 and sold for $3,500, only the $1,500 gain is taxable.
If crypto is sold at a loss, the capital loss can offset capital gains, up to $3,000 annually. Unused losses can be carried forward to future years. This practice, known as tax-loss harvesting, is commonly used to reduce tax liability.
Tax-loss harvesting applies only when the asset is sold or otherwise disposed of. Losses on assets held in tax-advantaged accounts, such as Roth IRAs, are not deductible.
Some crypto transactions do not typically trigger taxes:
– Holding crypto without selling it
– Transferring crypto between wallets owned by the same individual
– Buying crypto with U.S. dollars
– Receiving cryptocurrency as a gift (tax applies only upon sale or exchange, and the recipient inherits the donor’s cost basis and holding period)
– Donating crypto to qualified charities (may qualify for a deduction and generally not taxed as a sale)
The IRS will require brokers to issue Form 1099-DA starting Jan. 1, 2026. This form, used for reporting digital asset proceeds, will first be issued for the 2025 tax year. However, it will not include cost basis for now. That responsibility remains with the taxpayer.
Starting with transactions in 2026 (reported on 2027 forms), brokers must report cost basis for covered assets acquired and held on the same platform.
Decentralized finance brokers and some foreign platforms won’t issue 1099-DAs, but taxpayers are still required to report those transactions.
If cost basis records are missing, taxpayers may need to reconstruct them using transaction timestamps and historical prices. If cost basis cannot be determined, the IRS requires reporting a basis of zero.
Crypto tax software, such as CoinTracker and Koinly, can import exchange data and generate reports. These tools typically apply accepted accounting methods and integrate with mainstream tax software.
Tax preparation tools like TurboTax generally do not accept raw CSV files of individual transactions. Most users need to clean and summarize their records before integrating them.
Exchanging one cryptocurrency for another is treated as a taxable event. The IRS views the trade as if the original asset was sold for its market value in U.S. dollars, and that value was then used to buy the new asset.
Using cryptocurrency to make purchases is also considered a taxable event. The IRS treats the transaction as a sale of the crypto at its market value in dollars at the time it was spent.
Staking rewards, which are earned by helping validate transactions on blockchain networks, are typically taxed as ordinary income when they become accessible.
Taxpayers navigating complex crypto-related tax scenarios may benefit from consulting a CPA or tax professional.
