Insights on the Crypto Tax Rate

How is Crypto Taxed?

Cryptocurrency is taxed as property under U.S. federal tax law. This means that similar to stocks or real estate, taxable events occur when you sell, trade, or dispose of cryptocurrency for a profit or loss. Here’s a breakdown of how crypto taxes are structured:

Types of Taxable Events

A taxable event is any transaction or activity that triggers a tax liability. Common taxable events include:

• Selling cryptocurrency for fiat currency: If you sell Bitcoin, Ethereum, or any other crypto for U.S. dollars or another fiat currency, any resulting gain or loss is taxable.
• Trading one cryptocurrency for another: Exchanging Bitcoin for Ethereum is considered a sale of Bitcoin and a purchase of Ethereum. You are taxed on the gain or loss from the Bitcoin portion.
• Using crypto to purchase goods or services: If you buy something using cryptocurrency, the IRS considers it a taxable event. The gain or loss is calculated as the difference between the cost basis and the fair market value of the crypto at the time of purchase.
• Receiving cryptocurrency as income: If you earn crypto through mining, staking, airdrops, or as payment for services, its fair market value is considered ordinary income and is taxed as such.

What is the Crypto Tax Rate?

The crypto tax rate depends on how long you hold the cryptocurrency before selling or trading it. If held for less than a year, the tax is based on your ordinary income tax rate (short-term capital gains). If held for more than a year, it’s taxed at long-term capital gains rates, which are lower.

• Short-term crypto tax rate: 10% – 37% (same as your income tax bracket)
• Long-term crypto tax rate: 0%, 15%, or 20%, based on your taxable income

Type of Gain	Holding Period	Tax Rate
Short-term capital gain	Less than 1 year	10% – 37% (income tax rate)
Long-term capital gain	More than 1 year	0%, 15%, or 20% (based on income)

Crypto Tax Rate Breakdown

To provide a comprehensive understanding of how cryptocurrency gains are taxed, it’s essential to outline the 2024 federal income tax brackets for both short-term and long-term capital gains, categorized by filing status.

Short-Term Capital Gains

Short-term capital gains apply to assets held for one year or less and are taxed at your ordinary income tax rates. Below are the 2024 tax brackets for different filing statuses:

Tax Rate	Single Filers	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 to $11,600	$0 to $23,200	$0 to $11,600	$0 to $16,550
12%	$11,601 to $47,150	$23,201 to $94,300	$11,601 to $47,150	$16,551 to $63,100
22%	$47,151 to $100,525	$94,301 to $201,050	$47,151 to $100,525	$63,101 to $100,500
24%	$100,526 to $191,950	$201,051 to $383,900	$100,526 to $191,950	$100,501 to $191,950
32%	$191,951 to $243,725	$383,901 to $487,450	$191,951 to $243,725	$191,951 to $243,700
35%	$243,726 to $609,350	$487,451 to $731,200	$243,726 to $365,600	$243,701 to $609,350
37%	Over $609,350	Over $731,200	Over $365,600	Over $609,350

Source: Tax Foundation

Long-Term Capital Gains

Long-term capital gains apply to assets held for more than one year and benefit from reduced tax rates. The 2024 long-term capital gains tax brackets are as follows:

Tax Rate	Single Filers	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 to $47,025	$0 to $94,050	$0 to $47,025	$0 to $63,000
15%	$47,026 to $518,900	$94,051 to $583,750	$47,026 to $291,850	$63,001 to $551,350
20%	Over $518,900	Over $583,750	Over $291,850	Over $551,350

Source: Forbes Advisor

Example Calculation

Suppose you’re a single filer with a taxable income of $50,000, including a $5,000 long-term capital gain from selling cryptocurrency held for more than a year. Here’s how your taxes would be calculated:

1. Ordinary Income: $50,000 total income – $5,000 long-term capital gain = $45,000 ordinary income.
2. Tax on Ordinary Income:
   • 10% on the first $11,600: $11,600 × 0.10 = $1,160.
   • 12% on the amount over $11,600: ($45,000 – $11,600) × 0.12 = $33,400 × 0.12 = $4,008.
   • Total tax on ordinary income: $1,160 + $4,008 = $5,168.
3. Tax on Long-Term Capital Gain:
   • Since your total taxable income ($50,000) falls within the 0% bracket for long-term capital gains (up to $47,025), the portion of your capital gain that fits within this bracket is taxed at 0%.
   • The remaining $2,975 ($50,000 – $47,025) is taxed at 15%: $2,975 × 0.15 = $446.25.
   • Total tax on long-term capital gain: $446.25.
4. Total Tax Liability:
   • $5,168 (ordinary income tax) + $446.25 (long-term capital gain tax) = $5,614.25.

This example illustrates how different types of income are taxed at varying rates, emphasizing the importance of understanding both ordinary income and capital gains tax brackets.

Note: Tax laws are subject to change. For the most current information, consult the IRS website or contact a tax professional.

IRS Guidelines for Crypto Tax Filings

Understanding the IRS guidelines for cryptocurrency taxation is essential for accurately reporting transactions and avoiding penalties. Below, we clarify the key rules and requirements set forth by the IRS.

Reporting Requirements for Cryptocurrency Transactions

The IRS treats cryptocurrency as property, which means all taxable events involving crypto must be reported. Transactions such as selling, trading, or disposing of cryptocurrency are recorded on Form 8949: Sales and Other Dispositions of Capital Assets.

This form requires detailed information, including the date of acquisition, date of sale, cost basis, and fair market value for each transaction. The totals from Form 8949 are summarized on Schedule D (Form 1040), which calculates overall capital gains or losses.

For cryptocurrency received as income (e.g., through airdrops, staking, or payment for services), the fair market value at the time of receipt must also be reported. Transactions exceeding $600 are particularly important to disclose, as the IRS requires additional reporting for such activities to ensure compliance.

Tax Treatment for Specific Crypto Activities

Cryptocurrency activities like airdrops, staking rewards, and using crypto for purchases have unique tax implications:

• Airdrops: Any cryptocurrency received from an airdrop is treated as ordinary income. The value of the crypto at the time it is received determines the taxable amount. If you later sell the airdropped crypto, additional capital gains taxes apply based on the difference between its sale price and its value at receipt.
• Staking Rewards: Staking income is also considered ordinary income and must be reported at its fair market value upon receipt. When staking rewards are sold, any increase in value from the time they were earned is subject to capital gains tax.
• Crypto Used for Purchases: Using cryptocurrency to buy goods or services is a taxable event. You must calculate the gain or loss based on the difference between the crypto’s cost basis and its fair market value at the time of the purchase.

Non-Taxable Events and Exemptions

Certain activities involving cryptocurrency are not taxable. For example, simply buying and holding crypto or transferring it between personal wallets does not trigger a tax event.

Additionally, crypto gifts under $17,000 (2024 limit) are not taxable for the giver, although the recipient may owe taxes upon selling the gifted assets.

Donations of cryptocurrency to qualified charities can be tax-deductible, based on the fair market value at the time of donation.

IRS Enforcement and Compliance

To improve transparency and ensure compliance, the IRS requires crypto exchanges to issue Form 1099-K for transactions exceeding $600, starting in 2024. This added reporting measure helps the IRS track taxable activity. Non-compliance can lead to penalties, as the IRS continues to focus on virtual currency through its Virtual Currency Compliance Campaign.

Frequently Asked Questions