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How Crypto Is Taxed: Short-Term vs Long-Term Capital Gains
Published May 31, 2026
In the United States, the IRS treats cryptocurrency as property, not currency. That means every time you sell, trade, or spend crypto, it is a taxable event — and your gain or loss is calculated the same way as selling stocks or real estate.
This article covers US federal tax treatment as a general guide. It is not tax advice — consult a tax professional for your specific situation.
What Is a Taxable Event?
Not all crypto activity triggers taxes. The distinction matters:
| Activity | Taxable? |
|---|---|
| Buying crypto with USD | No |
| Holding crypto | No |
| Transferring between your own wallets | No |
| Selling crypto for USD | Yes |
| Trading one crypto for another | Yes |
| Spending crypto on goods/services | Yes |
| Receiving crypto as income (mining, staking, airdrop) | Yes — as ordinary income |
| Gifting crypto (within annual exclusion) | Generally no |
The receipt of staking rewards or mining income is taxed as ordinary income at the fair market value on the day received — a separate event from any capital gain when you later sell those coins.
Short-Term vs Long-Term Capital Gains
The holding period determines your tax rate:
| Holding period | Rate applied |
|---|---|
| Held ≤ 12 months | Short-term: ordinary income tax rates (10–37%) |
| Held > 12 months | Long-term: preferential rates (0%, 15%, or 20%) |
2024 long-term capital gains rates (single filers):
| Taxable income | Long-term rate |
|---|---|
| $0 – $47,025 | 0% |
| $47,026 – $518,900 | 15% |
| Over $518,900 | 20% |
The difference in rates is why holding for 12+ months can dramatically reduce your tax bill on the same dollar gain.
How to Calculate Your Capital Gain
Capital gain (or loss) = Sale proceeds − Cost basis
Cost basis = what you paid for the crypto, including any fees paid at acquisition.
Sale proceeds = what you received, minus any fees paid at sale.
Example:
- Bought 0.5 BTC for $18,000 (including $20 in fees) → cost basis = $18,020
- Sold 0.5 BTC for $27,500 (after a $30 fee) → proceeds = $27,470
- Gain = $27,470 − $18,020 = $9,450
If held more than 12 months, this is a long-term gain taxed at 0–20%. If held less, it's ordinary income.
Use the Crypto Tax Estimator to calculate your gain, select your holding period, and see the estimated federal tax owed at your income bracket.
Cost Basis Methods
When you've bought the same coin multiple times at different prices, you need a method for deciding which "lot" you're selling:
| Method | Description | Typical effect |
|---|---|---|
| FIFO (First In, First Out) | Oldest purchases sold first | IRS default if you don't specify |
| HIFO (Highest In, First Out) | Highest-cost lots sold first | Minimises taxable gain |
| Specific identification | You designate which exact lot | Maximum flexibility; requires records |
HIFO generally minimises your tax bill but requires precise record-keeping and a compliant exchange or software to track specific lots. The IRS requires you to use a consistent method and maintain adequate records.
Losses Can Offset Gains
Crypto losses are deductible against capital gains. If your total capital losses exceed your capital gains, you can deduct up to $3,000 of net losses against ordinary income per year, with the remainder carried forward.
This is why tax-loss harvesting — selling assets at a loss to offset other gains — is a legitimate and common strategy. Crypto has no wash-sale rule (as of 2024), unlike stocks, so you can immediately repurchase after a loss sale.
What You Need to Report
The IRS requires you to report all capital gains and losses on Form 8949, then summarise on Schedule D. Exchanges are increasingly required to issue 1099-DA forms (starting 2025–2026), but even without a 1099, you're legally required to report.
Good records to keep for every transaction:
- Date acquired and date sold
- Amount in crypto and USD value at each event
- Fees paid
- Wallet addresses for transfers
Related Crypto Tools
The Crypto Profit Calculator calculates your gain, ROI, and loss from any buy/sell pair. For DCA positions where you've bought at multiple prices, the DCA Calculator tracks your average cost basis across recurring purchases — the first number you need before calculating your taxable gain.