How the IRS taxes cryptocurrency
The IRS treats crypto as property, not currency. That single decision drives everything: each disposal is a taxable event that produces a capital gain or loss, measured as sale proceeds minus your cost basis. Buying and holding is never taxable, and moving coins between your own wallets isn't either, but selling, trading, or spending is.
Taxable events people miss
- Selling crypto for dollars: the obvious one.
- Trading one token for another: swapping ETH for SOL is a taxable sale of the ETH, even though no cash was involved.
- Spending crypto on goods or services, treated as selling it at market value.
- Mining, staking rewards and airdrops: generally ordinary income at fair market value when received, then capital gains later when sold.
The holding period is the whole game
Hold for one year or less and the gain is short-term, taxed at your ordinary income rate, up to 37%. Hold for more than a year and it's long-term, taxed at the preferential 0%, 15% or 20% rates. On a $10,000 gain, a 24%-bracket investor pays $2,400 short-term versus $1,500 long-term. Waiting past the one-year mark is the single highest-value move in crypto tax planning.
Losses are valuable, and crypto has a quirk
Capital losses offset gains dollar-for-dollar, and up to $3,000 of net loss can offset ordinary income each year, with the rest carried forward. Historically the wash-sale rule, which blocks repurchasing a substantially identical security within 30 days, has applied to securities rather than property, a gap crypto investors have used to harvest losses. Rules in this area have been tightening, so confirm current treatment before relying on it.
Reporting and records
Exchanges increasingly issue 1099 forms, and the IRS matches them against your return, so unreported disposals draw automated notices. Track cost basis carefully across wallets and exchanges: it's the number that decides your gain. High earners should also budget for the 3.8% Net Investment Income Tax above $200,000 (single) or $250,000 (joint), which this calculator includes. Full detail sits in our capital gains guide.