How Crypto Taxes Work (US)
The IRS treats crypto as property, not currency. Every sale, trade, and swap is a taxable event. Here's the playbook.
In the United States, the IRS treats crypto as property — like stocks, not like cash. Every time you dispose of crypto, you trigger a taxable event.
What counts as a taxable event:
- Selling crypto for USD - Swapping one crypto for another (yes, ETH → SOL is taxable) - Spending crypto to buy a good or service - Earning crypto (staking rewards, mining, airdrops, work payments) — taxed as ordinary income at the time received
What's NOT a taxable event:
- Buying crypto with USD and holding - Transferring crypto between your own wallets - Sending crypto to yourself or to a hardware wallet - Borrowing against your crypto (loans aren't income)
How gains are calculated:
For each disposal: sale price − cost basis = capital gain (or loss).
- Short-term (held less than 1 year) — taxed at your ordinary income rate (10–37%). - Long-term (held 1+ year) — taxed at 0%, 15%, or 20% depending on your income bracket.
This is why HODLing for 12+ months can dramatically lower your tax bill.
Cost basis matters. If you bought 1 BTC at $30k and another 1 BTC at $60k, then sold 1 BTC at $50k, what's your gain? Depends on which one you sold. Default IRS rule is FIFO (first in, first out), but you can elect specific-ID if you can document it.
Tools that help:
- Koinly, CoinTracker, TokenTax — Import your exchange and wallet transactions, generate IRS Form 8949 and Schedule D.
Common mistakes:
- Forgetting that crypto-to-crypto swaps are taxable. - Not tracking on-chain DeFi activity (LP positions, yield farming, airdrops). - Missing staking income reporting.
This is not tax advice — talk to a CPA who actually understands crypto if your situation is non-trivial.