Cryptocurrency is considered property by the IRS, which means that gains and losses from crypto transactions are taxed similarly to stocks and real estate. Every time you sell, trade, or use cryptocurrency, it can trigger a taxable event, depending on whether you’ve made a profit or a loss.
Taxable Crypto Events:
- Selling cryptocurrency for cash.
- Trading one cryptocurrency for another.
- Using cryptocurrency to purchase goods or services.
- Mining cryptocurrency (the fair market value at the time of receipt is taxable).
Non-Taxable Crypto Events:
- Buying cryptocurrency with fiat currency.
- Transferring crypto between personal wallets.
How Are Gains and Losses Calculated?
Gains or losses are calculated by comparing the cost basis (the price you originally paid for the crypto) to the value when sold or exchanged. Short-term gains (held for less than one year) are taxed at ordinary income rates, while long-term gains (held for more than one year) are taxed at reduced rates.
Taxable vs. Non-Taxable Crypto Transactions
| Transaction Type | Taxable | Non-Taxable |
| Selling cryptocurrency for cash | Yes | No |
| Trading one cryptocurrency for another | Yes | No |
| Purchasing goods or services with crypto | Yes | No |
| Mining cryptocurrency | Yes | No |
| Buying cryptocurrency with USD | No | Yes |
| Transferring cryptocurrency between wallets | No | Yes |
Frequently Asked Questions
1. Do I have to pay taxes if I only bought crypto but haven’t sold it?
No, simply buying crypto with U.S. dollars is not a taxable event.
2. What happens if I fail to report my crypto transactions?
Failing to report taxable crypto events may result in penalties from the IRS.
3. How do I report crypto transactions on my tax return?
You’ll need to use Form 8949 for sales and exchanges of crypto, along with Schedule D to summarize your capital gains and losses.
4. Are crypto-to-crypto trades taxable?
Yes, trading one cryptocurrency for another is considered a taxable event by the IRS.
5. Is crypto staking income taxable?
Yes, staking rewards are taxable and must be reported at their fair market value when received.
6. Do I have to pay taxes on crypto gifts?
No, receiving a crypto gift isn’t taxable, but gains or losses must be reported if you sell it.