Capital gains tax on crypto trades
Last reviewed: January 2026
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The IRS classifies cryptocurrency as property, not currency, meaning every disposal event — selling, trading, spending, or converting — triggers a capital gains or loss calculation.[1] Cost basis tracking is essential: you need to know the exact purchase price and date for every unit of crypto you sell. Most investors use either FIFO (first in, first out) or specific identification methods to determine which units are being sold.[2] Crypto received as mining rewards, staking yields, or airdrops is taxed as ordinary income at fair market value when received, then subject to capital gains tax on any appreciation when later sold.[3] Use the Crypto Profit Calculator to calculate gains on individual trades.
| Holding Period | Tax Type | Rate | Strategy |
|---|---|---|---|
| Under 1 year | Short-term capital gains | 10–37% | Taxed as ordinary income |
| Over 1 year | Long-term capital gains | 0–20% | Hold to qualify |
| Mining/staking income | Ordinary income | 10–37% | Taxed at FMV when received |
| Losses | Capital loss deduction | Up to $3K/yr | Offset gains, carry forward |
The IRS treats cryptocurrency as property, meaning every disposal event — selling, trading one crypto for another, spending crypto on goods or services, or receiving crypto as payment — triggers a taxable event. Capital gains are classified as short-term (held less than one year, taxed at ordinary income rates of 10-37%) or long-term (held over one year, taxed at preferential rates of 0%, 15%, or 20%). Simply buying crypto and holding it is not taxable. Transferring between your own wallets is not taxable. Receiving crypto through airdrops, staking rewards, mining, or as payment for services is taxed as ordinary income at the fair market value when received, which also establishes the cost basis for future capital gains calculations.
| Event Type | Tax Treatment | Rate Range | Example |
|---|---|---|---|
| Sell after 1+ year | Long-term capital gain | 0-20% | Buy BTC at $30K, sell at $60K → $30K LTCG |
| Sell within 1 year | Short-term capital gain | 10-37% | Buy ETH at $2K, sell at $3K → $1K STCG |
| Swap crypto to crypto | Capital gain/loss | 0-37% | Trade BTC for ETH → taxable at FMV |
| Staking/mining rewards | Ordinary income | 10-37% | Earn 0.5 ETH staking → income at FMV |
| Airdrop received | Ordinary income | 10-37% | Receive tokens worth $500 → $500 income |
| NFT sale | Capital gain + collectibles rate | Up to 28% | Sell NFT for profit → possible collectibles rate |
Tax-loss harvesting is a powerful strategy for reducing crypto tax liability. When a cryptocurrency position has declined in value, selling it realizes the loss, which can offset capital gains from profitable trades dollar-for-dollar. If losses exceed gains, up to $3,000 in net capital losses can offset ordinary income each year, with excess losses carrying forward to future tax years indefinitely. Unlike traditional securities, cryptocurrency is not currently subject to wash sale rules, meaning you can sell a crypto asset at a loss and immediately repurchase the same asset to maintain your position while capturing the tax benefit. However, the IRS has signaled interest in applying wash sale rules to crypto, and legislation has been proposed to close this gap. Tracking cost basis across multiple wallets and exchanges is essential — the IRS accepts specific identification, FIFO (first-in-first-out), LIFO (last-in-first-out), and HIFO (highest-in-first-out) accounting methods. HIFO typically minimizes tax liability by selling the highest-cost lots first, resulting in smaller gains or larger losses.
Crypto tax reporting has become increasingly rigorous. Starting with the 2024 tax year, centralized exchanges are required to report user transactions to the IRS on Form 1099-DA (Digital Assets), similar to how brokerages report stock trades on Form 1099-B. Taxpayers report crypto transactions on Form 8949 (Sales and Dispositions of Capital Assets) and summarize results on Schedule D of their tax return. The front page of Form 1040 includes a digital assets question that all filers must answer truthfully — checking "No" when you have had taxable crypto transactions constitutes a false statement to the IRS. Decentralized exchange transactions, DeFi protocol interactions, and cross-chain swaps present tracking challenges since no centralized party reports these to the IRS, but taxpayers are still legally obligated to report all taxable events. Crypto tax software like CoinTracker, Koinly, and TaxBit can import transaction histories from major exchanges and wallets, automatically calculate gains and losses, and generate the necessary tax forms. For general tax calculations and income planning, see our Tax Calculator and Capital Gains Tax Calculator.
The most expensive crypto tax mistakes include failing to report crypto-to-crypto trades (the IRS considers every swap a taxable event even if you never converted to USD), not tracking cost basis from the original purchase date (which can result in overpaying taxes because the entire sale amount is treated as gain if no cost basis is documented), ignoring staking and mining income (which is taxable as ordinary income when received, not when sold), and missing the FIFO default method when specific identification would reduce taxes. Gifting crypto over the annual gift tax exclusion ($18,000 per recipient in 2024) triggers gift tax reporting requirements on Form 709. Charitable donations of crypto held longer than one year can be deducted at fair market value without triggering capital gains — a doubly beneficial strategy for highly appreciated assets. International crypto holdings may trigger FBAR (Foreign Bank Account Report) requirements if the aggregate value of foreign crypto accounts exceeds $10,000 at any point during the year.
Decentralized finance (DeFi) introduces tax complexities that go beyond simple buy-and-sell scenarios. Providing liquidity to automated market makers may trigger taxable events when tokens are deposited (if the protocol issues LP tokens representing a different asset), when trading fees are earned (taxable as income), and when liquidity is withdrawn (potential capital gain or loss). Yield farming rewards are generally taxed as ordinary income when received. Wrapped tokens present ambiguity — wrapping ETH to WETH may or may not be a taxable event depending on whether the IRS views it as a like-kind exchange or a disposition. NFT transactions follow standard capital gains rules, but the IRS may classify certain NFTs as collectibles subject to a maximum 28% long-term capital gains rate rather than the standard 20% maximum. Keeping detailed records of every DeFi interaction, including timestamps, token quantities, and fair market values at the time of each transaction, is essential for accurate reporting and audit protection.
See also: Crypto DCA Calculator · Crypto Staking Yield Calculator · Tax Estimator
→ Every crypto-to-crypto trade is a taxable event. Swapping Bitcoin for Ethereum triggers capital gains tax on the Bitcoin, even if you never converted to dollars. The IRS treats crypto as property, not currency — and every disposal (trade, sell, spend) is reportable.
→ Hold for 366+ days to qualify for long-term rates. Long-term capital gains rates (0%, 15%, or 20%) are significantly lower than short-term rates (taxed as ordinary income up to 37%). A one-day difference in holding period can change your tax rate dramatically.
→ Tax-loss harvesting works for crypto. Unlike stocks, crypto is not subject to wash sale rules (as of current IRS guidance). You can sell at a loss, immediately rebuy, and use the loss to offset gains. This is a significant tax planning advantage unique to crypto.
→ Staking rewards and airdrops are taxable as income. Receiving crypto through staking, mining, or airdrops creates ordinary income at the fair market value when received. This is income tax, not capital gains — and it applies even if you don't sell. See our Tax Calculator for overall income tax planning.
See also: Capital Gains · Crypto Profit · Tax Calculator · Tax Brackets