Crypto Taxes: How They Work & 2024-2025 Rates

Cryptocurrencies such as Bitcoin appreciated wildly in 2024. Many crypto investors may be tempted to cash in — but doing so may generate some tax liability. When you sell cryptocurrency, you are subject to the federal capital gains tax. This is the same tax you pay for the sale of other assets, including stocks.

Crypto taxes are a percentage of your gains. The rate depends on your income and whether or not you held the crypto for more than a year. Short-term capital gains rates range from 10% to 37%. Long-term rates run from 0% to 20%.

Selling crypto for a loss and moving wallets generally won’t generate tax liability, but staking and crypto-crypto trading do. Consider the following:

1. How long you owned the crypto. If you sold it after more than a year, you’ll generally pay less in taxes than if you sold sooner.

2. Your annual income. In general, the higher your taxable income, the higher your rate.

You are only taxed on cryptocurrency if you sell it, whether for cash or for another cryptocurrency. So, if you bought $100 of cryptocurrency that is now worth $200 and you still own it, you aren’t taxed.

If you own cryptocurrency for one year or less before selling, you’ll pay the short-term capital gains tax. Short-term capital gains taxes are higher than long-term capital gains taxes.

Any profits from short-term capital gains are added to all other taxable income for the year, and you calculate your taxes on the entire amount. This means short-term gains are taxed as ordinary income. Like with income, you’ll end up paying a different tax rate for the portion of your income that falls into each tax bracket.

For example, if you’re a single filer, you’d pay 10% on the first $11,000 of income. Then, you’d pay 12% on the next chunk of income, up to $44,725. Below are the full short-term capital gains tax rates, which apply to cryptocurrency and are the same as the federal income tax brackets. You can also estimate your potential tax bill with our crypto tax calculator.

If you sell cryptocurrency after owning it for more than a year, you’ll pay long-term capital gains. Long-term capital gains have their own system of tax rates. While these types of gains aren’t taxed as ordinary income, you still use your taxable income to determine the long-term capital gains bracket you’re in. Depending on your income and filing status, you’ll generally either pay 0%, 15% or 20% on your long-term gains.

If you sell crypto for less than you bought it for, you can use those losses to offset gains you made elsewhere. The resulting number is sometimes called your net gain. For example:

• You buy $100 of Crypto ABC and $100 of Crypto XYZ.

• You later sell ABC for $75 (a loss of $25) and XYZ for $200 (a gain of $100).

• Your potential taxable amount would be $75 ($100-$25).

If your losses exceed your gains, you can use the additional amount to reduce your taxable income, up to $3,000 in most cases. You can then use, or “carry over,” any remaining losses to offset gains in future years.

No. Transferring cryptocurrency from one wallet you own to another you own does not count as selling it. You won’t be taxed.

Yes. The IRS considers staking rewards as income that must be reported, as well as any cryptocurrencies received through mining. Other forms of cryptocurrency transactions that the IRS says must be reported include:

• Buying property, goods or services with crypto.

• Receiving crypto for goods or services.

• Receiving crypto after a hard fork (a change in the underlying blockchain).

• Receiving an airdrop (a common crypto marketing technique).

Yes. The IRS is clear about this: If you trade cryptocurrency for any other asset, including other cryptocurrencies, it’s a taxable event.

You’ll record the history for all relevant transactions on IRS Form 8949 and summarize that information on Form 1040 along with capital gains from any other investments.

It depends. It’s easier to manage if your exchange sends you the proper tax forms.

Most of the U.S.-based centralized exchanges have good data management practices.

Compiling the information can be time-consuming work, especially if you’ve made many trades. But crypto-specific tax software that connects to your crypto exchange, compiles the information and generates IRS Form 8949 for you can make this task easier.

Some complex situations probably require professional assistance. You might want to consider consulting a tax professional if:

• You have many hundreds or thousands of transactions.

• Your transactions are on-chain or if you used an exchange that isn’t based in the U.S.

• The crypto you sold was purchased before 2016.

• You just want peace of mind.