Crypto gains are taxed as capital gains in the United States, with the rate depending on how long you held the asset before selling. Hold for one year or less and you pay short-term capital gains tax at your ordinary income tax rate, which ranges from 10% to 37%. Hold for more than a year and you pay the lower long-term rate of 0%, 15%, or 20%, based on your taxable income. Beyond those basics, several rules around what counts as a taxable event, how your cost basis works, and how crypto income gets treated can significantly change what you owe.
What Triggers a Taxable Event
Simply buying crypto and holding it does not create a tax obligation. The IRS treats cryptocurrency as property, so a taxable event happens when you dispose of it. That includes selling crypto for cash, swapping one cryptocurrency for another, and spending crypto to buy goods or services. Each of these triggers a capital gain or loss based on the difference between what you paid for the crypto (your cost basis) and its fair market value at the time of the transaction.
Swapping coins trips up a lot of people. If you trade Bitcoin for Ethereum, the IRS views that as selling Bitcoin at its current market price, which means you owe tax on any gain since you originally bought it. The same logic applies if you use crypto to pay for a car, a meal, or anything else. Every one of those transactions requires you to calculate whether you gained or lost value.
Short-Term vs. Long-Term Rates
The holding period starts the day after you acquire the crypto. If you sell within one year of that date, any profit is a short-term capital gain taxed at your ordinary income rate. The current federal income tax brackets run from 10% up to 37%, so a short-term crypto gain gets stacked on top of your other income and taxed accordingly.
If you hold longer than one year before selling, you qualify for the lower long-term capital gains rates. For 2026, those break down like this for single filers:
- 0% on taxable income up to $49,450
- 15% on taxable income from $49,451 through $545,500
- 20% on taxable income above $545,500
Married couples filing jointly get wider brackets: 0% up to $98,900, 15% from $98,901 through $613,700, and 20% above that. Head of household filers fall in between, with the 0% rate applying up to $66,200.
High earners face an additional 3.8% net investment income tax (NIIT) on top of their capital gains rate when their income exceeds certain thresholds. That can push the effective top rate on long-term crypto gains to 23.8%.
Mining, Staking, and Airdrops
Not all crypto tax obligations come from selling. If you receive cryptocurrency through mining, staking rewards, or airdrops, the fair market value of those tokens on the day you receive them counts as ordinary income. You report it on your tax return for that year, and it gets taxed at your regular income tax rate, not the capital gains rate.
Once you’ve reported that income, the fair market value on the day you received the tokens becomes your cost basis. If you later sell those tokens at a higher price, the difference is a capital gain. If you sell at a lower price, it’s a capital loss. The holding period for determining short-term versus long-term starts on the date you received them.
How Cost Basis Works
Your cost basis is what you originally paid for the crypto, including any fees or commissions at the time of purchase. The gain you owe tax on is the sale price minus your cost basis. If you bought 1 Bitcoin at $30,000 and sold it at $50,000, your taxable gain is $20,000.
Things get complicated when you’ve bought the same cryptocurrency at different prices over time. Say you purchased Ethereum in three batches at $1,500, $2,000, and $3,000. When you sell some of it, which batch counts as sold matters because it changes the size of your gain.
The IRS allows two approaches. The first is specific identification, where you designate exactly which units you’re selling. To use this method, you need records showing the date and time each unit was acquired, your basis in each unit, and the fair market value at both acquisition and disposal. You can identify units by their digital identifiers (like a public key and address) or by detailed transaction records within a single wallet or account.
If you don’t specifically identify which units you’re selling, the IRS defaults to FIFO, or first in, first out. Under FIFO, the earliest coins you purchased are treated as the first ones sold. In a rising market, FIFO often produces larger taxable gains because your oldest purchases tend to have the lowest cost basis.
Specific identification gives you more control. If you want to minimize your current tax bill, you can choose to sell the units with the highest cost basis first, reducing your gain. If you want to lock in long-term treatment, you can select units you’ve held for over a year. The tradeoff is that you need meticulous records to back it up.
Using Losses to Offset Gains
Crypto losses are deductible. If you sell a cryptocurrency for less than what you paid, you can use that capital loss to offset capital gains from other crypto sales or from other investments like stocks. If your total capital losses exceed your total capital gains for the year, you can deduct up to $3,000 of the excess against your ordinary income. Losses beyond that carry forward to future tax years.
One notable difference from stocks: the wash sale rule, which prevents you from claiming a loss if you repurchase the same asset within 30 days, has historically not applied to crypto under IRS guidance. However, tax law in this area is evolving, so keep an eye on whether new rules extend wash sale restrictions to digital assets.
Reporting Crypto on Your Tax Return
Crypto gains and losses are reported on Schedule D of your federal tax return, with the individual transactions detailed on Form 8949. You’ll need to list each sale or disposition, your cost basis, the proceeds, and whether it was a short-term or long-term holding. Your federal tax return also includes a question asking whether you received, sold, or otherwise disposed of digital assets during the year.
Starting in 2026, crypto brokers and exchanges will begin sending Form 1099-DA to both you and the IRS, similar to the 1099-B that stock brokerages send. Brokers are required to provide these forms by February 17, 2026, for transactions in the 2025 tax year. However, most of those initial forms will not include your cost basis for 2025 transactions, so you’ll still need to calculate basis yourself using your own records.
This makes recordkeeping essential. Track every purchase date, purchase price, sale date, sale price, and any fees for each transaction. Crypto tax software can pull transaction history from exchanges and wallets to automate much of this, which is especially helpful if you have dozens or hundreds of trades across multiple platforms.
What You Owe in Practice
To put real numbers on this: suppose you’re a single filer with $60,000 in salary and you sell crypto you’ve held for 18 months at a $10,000 profit. That $10,000 is a long-term capital gain. Your total taxable income of $70,000 (before deductions) would place the gain in the 15% long-term bracket for 2026, so you’d owe $1,500 in federal tax on that gain.
Now imagine the same scenario, but you held the crypto for only six months. That $10,000 is now a short-term gain taxed as ordinary income. At the 22% bracket, you’d owe $2,200 instead. The difference between holding 13 months and 11 months can meaningfully change your tax bill, which is why timing your sales around the one-year mark is one of the simplest tax strategies available to crypto investors.