In the United States, the IRS treats cryptocurrency as property rather than currency, which shapes almost every tax rule that follows. That means many everyday crypto actions, including selling, swapping, or spending, can create a taxable event, while simply buying and holding does not. This guide explains the main categories at a high level; it is educational and not a substitute for advice from a tax professional.
What counts as a taxable event
You generally owe tax when you dispose of crypto: selling it for dollars, trading one coin for another, or using it to buy goods and services. Each disposal creates a capital gain or loss equal to the difference between what you received and your cost basis. Trading Bitcoin for Ethereum is taxable even though no cash is involved, because you disposed of one property for another. Buying crypto with dollars and holding it, or moving it between your own wallets, is not a taxable event.
Capital gains: short-term versus long-term
If you hold crypto for one year or less before disposing of it, any gain is short-term and taxed at your ordinary income tax rate. If you hold for more than one year, the gain is long-term and taxed at the generally lower long-term capital gains rates. The holding period is measured from the day after you acquire the asset. This is why timing a sale around the one-year mark can meaningfully change the tax bill.
Crypto earned as income
Crypto you receive as payment, from mining, from staking rewards, or from many airdrops is generally taxed as ordinary income at its fair-market value on the day you receive it. That value also becomes your cost basis, so a later sale can produce a separate capital gain or loss. Getting paid in crypto for work is treated much like being paid in cash for tax purposes. These income events are easy to overlook because no dollars ever hit your bank account.
Losses, reporting, and records
Capital losses offset capital gains, and up to 3,000 dollars of net losses can offset ordinary income each year, with the rest carried forward. Gains and losses are reported on Form 8949 and Schedule D, while crypto income flows through other parts of your return. Starting with the 2025 tax year, many brokers issue Form 1099-DA to report proceeds, but you remain responsible for tracking your own basis. Keeping detailed records of dates, amounts, and values is essential because exchanges may not have your full history.
Suppose you buy 1 ETH for 2,000 dollars and later trade it for another token when ETH is worth 3,200 dollars. Even though you never cashed out to dollars, you have a 1,200 dollar capital gain to report. If you held that ETH for more than a year, the gain is taxed at long-term rates rather than as ordinary income.
Key takeaways
- The IRS treats crypto as property, so disposals create capital gains or losses.
- Selling, trading coin-for-coin, and spending crypto are all taxable events; buying and holding is not.
- Holding longer than a year qualifies gains for lower long-term rates.
- Mined, staked, airdropped, or earned crypto is usually ordinary income at its value when received.
- Losses offset gains plus up to 3,000 dollars of ordinary income per year, with carryforward.
Common mistakes
- Thinking coin-to-coin trades are tax-free because no cash was withdrawn.
- Forgetting that staking rewards and airdrops are usually taxable as income when received.
- Relying only on exchange forms, which often miss transfers and cost basis.
FAQ
Do I owe tax if my crypto only went up but I did not sell?
No, unrealized gains are not taxed; a taxable event generally requires selling, trading, or spending the asset.
Is moving crypto between my own wallets taxable?
No, transferring assets between wallets you control is not a disposal, though you should keep records so your cost basis stays accurate.
Does the wash-sale rule apply to crypto?
The wash-sale rule has historically applied to stocks and securities rather than property like crypto, but proposals to extend it have been discussed, so check current rules or ask a tax professional.