Cryptocurrency taxes are confusing, poorly explained by most sources, and getting more complex every year. The IRS and tax authorities worldwide are increasing enforcement, and crypto exchanges now report directly to governments. Ignorance is no longer a viable strategy. If you bought, sold, traded, staked, mined, or received crypto in any form, you likely have tax obligations.
This guide explains crypto tax rules in plain language. No jargon, no legalese, just clear explanations of what is taxable, what is not, how to calculate your obligations, and how to minimize your tax bill legally. While this guide focuses primarily on US tax rules, the principles apply broadly to most countries that tax crypto.
Disclaimer: This guide is for educational purposes only and does not constitute tax advice. Consult a qualified tax professional for your specific situation.
In the United States, the IRS treats cryptocurrency as property, not currency. This means every disposal of crypto (selling, trading, spending, gifting above the annual exclusion) is potentially a taxable event. The tax treatment depends on how you acquired the crypto and what you did with it.
There are two main categories of crypto taxation:
Simply buying and holding crypto does not create a taxable event. You only owe taxes when you dispose of it (sell, trade, spend) or when you receive it as income.
When you sell cryptocurrency for more than your cost basis, you realize a capital gain. When you sell for less, you realize a capital loss. The tax rate depends on how long you held the asset before selling.
Short-term gains are taxed as ordinary income, meaning they are added to your regular income and taxed at your marginal rate. In the US, this ranges from 10% to 37% depending on your total income. Day traders and frequent traders typically pay short-term rates on most of their gains.
Long-term gains receive preferential tax treatment. The rates are 0%, 15%, or 20% depending on your income level. For most taxpayers, the long-term rate is 15%, which is significantly lower than their ordinary income rate. This creates a powerful incentive to hold crypto for at least 12 months before selling.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351 - $533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701 - $600,050 | Over $600,050 |
Note: These are approximate 2026 brackets. Check IRS publications for exact figures.
Your cost basis is what you paid for the crypto, including any transaction fees. If you bought 1 BTC for $50,000 with a $10 fee, your cost basis is $50,010. If you sell it for $80,000 with a $10 fee, your taxable gain is $80,000 - $10 - $50,010 = $29,980.
When you have multiple purchases at different prices (which most people do), you need a cost basis method. The most common are FIFO (First In, First Out), LIFO (Last In, First Out), and Specific Identification. FIFO is the default method and assumes you sell your oldest coins first. Specific Identification lets you choose which coins to sell, potentially allowing you to minimize gains by selling higher-cost lots.
The following are treated as ordinary income and taxed at your marginal rate:
DeFi creates some of the most complex tax situations in crypto. Every swap, liquidity provision, yield farming harvest, and governance action can trigger a taxable event.
Swapping one token for another on a DEX (Uniswap, SushiSwap, etc.) is a taxable disposition. You must calculate gain or loss on the token you are swapping away, based on its fair market value at the time of the swap minus your cost basis.
Adding tokens to a liquidity pool may be treated as a taxable disposition. The tax treatment is still evolving, but the safest approach is to treat LP token minting as a taxable event. When you remove liquidity, the withdrawal is another taxable event. Impermanent loss may or may not be deductible depending on how you report the transactions.
Claiming yield farming rewards is taxable income at the fair market value when claimed. Auto-compounding vaults may create continuous taxable events, making record-keeping extremely challenging without specialized software.
Both staking rewards and mining income are taxed twice: first as income when received, and then as capital gains when sold. Your cost basis for the gained tokens is their fair market value at the time of receipt (which is also the amount reported as income).
For example, if you receive 1 ETH in staking rewards when ETH is worth $3,000, you report $3,000 as income. If you later sell that ETH for $4,000, you also report a $1,000 capital gain. If ETH drops and you sell for $2,500, you can claim a $500 capital loss while still having reported the original $3,000 as income.
Buying an NFT with crypto is a taxable disposition of the crypto used for purchase. Selling an NFT for crypto triggers a capital gain or loss based on your cost basis in the NFT. Creating and selling an NFT is treated as self-employment income.
Bitcoin Ordinals inscriptions and Rune tokens follow similar rules. Minting, selling, or trading these assets creates taxable events just like any other crypto transaction.
Tax-loss harvesting is one of the most powerful legal strategies for reducing your crypto tax bill. The concept is simple: sell assets that are at a loss to offset your gains.
In the US, capital losses first offset capital gains dollar for dollar. If your losses exceed your gains, you can deduct up to $3,000 of the excess against ordinary income. Any remaining losses carry forward to future tax years indefinitely.
Historically, the wash sale rule (which prevents you from selling a stock at a loss and immediately rebuying it) did not apply to crypto. However, legislation extending wash sale rules to digital assets has been proposed and may take effect. Check current regulations before executing a wash sale strategy with crypto.
In the US, crypto transactions are reported on several forms:
Starting in 2026, exchanges are required to send 1099-DA forms reporting your crypto transactions to both you and the IRS. This means the IRS will have a record of your exchange-based activity, making accurate reporting more important than ever.
| Software | Free Tier | Paid Plans | Best For |
|---|---|---|---|
| Koinly | Up to 10,000 txns | From $49/year | Best overall, DeFi support |
| CoinTracker | Limited | From $59/year | TurboTax integration |
| TokenTax | None | From $65/year | Complex DeFi, full service |
| TaxBit | Free for individuals | Enterprise plans | Exchange partnerships |
| ZenLedger | Up to 25 txns | From $49/year | NFT traders |
All of these platforms import transaction data from major exchanges, wallets, and blockchains. They calculate your gains, losses, and income, then generate the tax forms you need to file. For anyone with more than a handful of transactions, crypto tax software is essential.
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Play Free NowYes. In the US and most countries, cryptocurrency is treated as property. Selling, trading, or spending crypto triggers capital gains tax. Receiving crypto as income triggers income tax. Simply holding without selling does not create a taxable event.
Short-term gains (held less than 1 year) are taxed at your ordinary income rate (10-37%). Long-term gains (held over 1 year) are taxed at 0%, 15%, or 20% depending on income. Most investors benefit significantly from holding at least 12 months before selling.
Yes. Swapping BTC for ETH (or any crypto-to-crypto trade) is a taxable disposition. You must calculate gains or losses based on fair market value at the time of swap minus your cost basis. This applies to DEX swaps, exchange trades, and all token conversions.
Koinly offers the best free tier and DeFi support. CoinTracker integrates with TurboTax. TokenTax handles the most complex scenarios. All import data from exchanges and wallets automatically.
Yes. Crypto losses offset crypto gains dollar for dollar. Excess losses offset up to $3,000 of ordinary income per year. Remaining losses carry forward to future years. Tax-loss harvesting by selling losing positions is a common strategy to reduce your tax bill.