A capital gain is the profit realized when you sell, trade, or spend crypto for more than its cost basis. Under current IRS treatment of digital assets as property, this applies broadly — not just to selling for cash, but to trading one crypto for another or using crypto to pay for goods and services.
US tax law generally distinguishes short-term gains (on assets held one year or less, taxed at ordinary income rates) from long-term gains (on assets held longer, taxed at typically lower rates). Losses can often be used to offset gains, which is part of why some investors track holding periods and cost basis closely throughout the year rather than only at tax time.
Every crypto-to-crypto trade can be a taxable event, which surprises many newer traders. This is general information, not tax advice; consult a qualified tax professional for guidance specific to your situation.
Key takeaways
- A capital gain is the profit from selling, trading, or spending crypto for more than its cost basis, and under IRS treatment this includes crypto-to-crypto trades and purchases, not just cash sales.
- Assets held one year or less are generally taxed as short-term gains at ordinary income rates, while assets held longer than one year typically qualify for lower long-term rates.
- Losses can often offset gains, which is why tracking holding periods and cost basis across wallets and exchanges matters. This is general information, not tax advice; consult a licensed tax professional.
Capital Gains (Crypto) — frequently asked questions
Do I owe tax when I swap one crypto for another?
Generally yes. Under IRS treatment of crypto as property, a crypto-to-crypto trade can be a taxable event just like selling for cash, and any gain above your cost basis may be taxable. Consult a tax professional.
How long do I need to hold crypto to get a lower tax rate?
Holding an asset for longer than one year generally qualifies it for long-term capital gains treatment, which typically carries lower rates than the short-term rates applied to assets held one year or less.
Can crypto losses reduce my tax bill?
Often yes. Losses can typically be used to offset capital gains, which is why many investors track cost basis and holding periods carefully. This is general information, not tax advice; consult a licensed tax professional for your situation.
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