What is the Capital Gains Tax on Crypto?

Cryptocurrency is part of many investors’ portfolios, but it also comes with tax implications that are often misunderstood or overlooked. If you’ve bought, sold, traded, or even used crypto to buy something, you could be subject to capital gains tax. Let’s review what that means and how it will affect your next tax return.

What Are Capital Gains?

Capital gains are the profits you make when you sell or dispose of an asset for more than you paid. In the eyes of the IRS, cryptocurrency is considered property, not currency. So anytime you sell crypto, exchange it for another coin, or use it to buy something, you’ve likely triggered a taxable event.

For example:

Selling Bitcoin for U.S. dollars? Taxable.
Trading Ethereum for Solana? Taxable.
Using crypto to pay for a coffee? Also taxable.

The amount of tax you owe depends on how long you held the asset before disposing of it.

What Is the Capital Gains Tax on Crypto?

The capital gains tax on crypto depends on how long you’ve held the asset. If you held it for one year or less, profits are taxed as ordinary income (short-term gains). If you held it for more than one year, you qualify for long-term capital gains tax rates—typically 0%, 15%, or 20% based on your income level. These rules apply whether you sold crypto for cash, traded it for another coin, or used it to make a purchase.

Short-Term vs. Long-Term Capital Gains on Crypto

The IRS distinguishes between short-term and long-term capital gains:

Short-Term Gains: Any profits are taxed as ordinary income if you hold your crypto for one year or less. That means the rate is based on your individual tax bracket, ranging anywhere from 10% to 37%.
Long-Term Gains: If you hold your crypto for more than one year, you may qualify for the long-term capital gains tax rate, which is lower. As of the 2024 tax year, long-term capital gains tax rates for most filers are:

- 0% if your taxable income is up to $44,625 (single) or $89,250 (married filing jointly)
- 15% if your taxable income is between $44,626–$492,300 (single) or $89,251–$553,850 (married filing jointly)
- 20% if your income exceeds those thresholds

These thresholds adjust slightly each year, so be sure to confirm with a CPA or tax professional.

How to Calculate Capital Gains on Crypto

Here’s a simplified version of how to calculate your gains:

Determine your cost basis – what you originally paid for the asset, including fees.
Subtract the cost basis from the selling price – this is your capital gain.
Apply the correct tax rate – based on how long you held the asset and your income level.

Example:
You bought 1 ETH for $1,500 in January 2022 and sold it for $2,000 in March 2024.
You held it for more than one year, so your $500 gain would likely be taxed at 15% (depending on your total income).

Other Tax Considerations for Crypto

Crypto taxes can get complex quickly. Here are a few other things to keep in mind:

Losses can offset gains: If you sold other assets at a loss, those losses can offset your crypto gains.
Mining and staking income: Rewards from mining or staking are treated as ordinary income, not capital gains.
Recordkeeping is essential: Keep track of your transactions, including dates, amounts, and values in USD at the time of the transaction.
Crypto tax software: Tools like CoinTracker or Koinly can help organize your records, but a CPA should still review your final return.

Don’t Let Crypto Taxes Catch You Off Guard

Crypto can be a valuable investment, but it comes with real tax responsibilities. Understanding capital gains tax rules is the first step in staying compliant and making smart financial decisions.

Need help navigating crypto taxes? At CPA Nerds, we specialize in helping individuals and businesses understand digital asset taxation. Whether you’re a first-time crypto investor or a seasoned trader, our team can help you minimize your tax liability and stay IRS-compliant.

Contact CPA Nerds today to schedule a consultation and take the guesswork out of your crypto taxes.