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.
Capital gains taxes are a percentage of your gain, or profit. There is not a single percentage used; instead, the percentage is determined by two factors:
How long you owned the cryptocurrency before selling it. If you own it for more than a year, you’ll generally pay less in taxes than what you’d pay if you sold it sooner.
Your total taxable income for the year in which you sold the cryptocurrency. In general, the higher your taxable income, the higher your rate will be.
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.
» Calculate your crypto profit or loss
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Short-term capital gains tax for crypto
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. 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 $10,275 of income. Then, you’d pay 12% on the next chunk of income, up to $41,775.
2022 tax brackets for taxes due in 2023
Single filers
Tax rate | Taxable income bracket | Tax owed |
|---|---|---|
10% | $0 to $10,275. | 10% of taxable income. |
12% | $10,276 to $41,775. | $1,027.50 plus 12% of the amount over $10,275. |
22% | $41,776 to $89,075. | $4,807.50 plus 22% of the amount over $41,775. |
24% | $89,076 to $170,050. | $15,213.50 plus 24% of the amount over $89,075. |
32% | $170,051 to $215,950. | $34,647.50 plus 32% of the amount over $170,050. |
35% | $215,951 to $539,900. | $49,335.50 plus 35% of the amount over $215,950. |
37% | $539,901 or more. | $162,718 plus 37% of the amount over $539,900. |
Married, filing jointly
Tax rate | Taxable income bracket | Taxes owed |
|---|---|---|
10% | $0 to $20,550. | 10% of taxable income. |
12% | $20,551 to $83,550. | $2,055 plus 12% of the amount over $20,550. |
22% | $83,551 to $178,150. | $9,615 plus 22% of the amount over $83,550. |
24% | $178,151 to $340,100. | $30,427 plus 24% of the amount over $178,150. |
32% | $340,101 to $431,900. | $69,295 plus 32% of the amount over $340,100. |
35% | $431,901 to $647,850. | $98,671 plus 35% of the amount over $431,900. |
37% | $647,851 or more. | $174,253.50 plus 37% of the amount over $647,850. |
Married, filing separately
Tax rate | Taxable income bracket | Taxes owed |
|---|---|---|
10% | $0 to $10,275. | 10% of taxable income. |
12% | $10,276 to $41,775. | $1,027.50 plus 12% of the amount over $10,275. |
22% | $41,776 to $89,075. | $4,807.50 plus 22% of the amount over $41,775. |
24% | $89,076 to $170,050. | $15,213.50 plus 24% of the amount over $89,075. |
32% | $170,051 to $215,950. | $34,647.50 plus 32% of the amount over $170,050. |
35% | $215,951 to $323,925. | $49,335.50 plus 35% of the amount over $215,950. |
37% | $323,926 or more. | $87,126.75 plus 37% of the amount over $323,925. |
Head of household
Tax rate | Taxable income bracket | Tax owed |
|---|---|---|
10% | $0 to $14,650. | 10% of taxable income. |
12% | $14,651 to $55,900. | $1,465 plus 12% of the amount over $14,650. |
22% | $55,901 to $89,050. | $6,415 plus 22% of the amount over $55,900. |
24% | $89,051 to $170,050. | $13,708 plus 24% of the amount over $89,050. |
32% | $170,051 to $215,950. | $33,148 plus 32% of the amount over $170,050. |
35% | $215,951 to $539,900. | $47,836 plus 35% of the amount over $215,950. |
37% | $539,901 or more. | $161,218.50 plus 37% of the amount over $539,900. |
Long-term capital gains tax for crypto
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 brackets. 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.
» New to crypto investing? Here's our guide to getting started
Single | Married, filing jointly | Married, filing separately | Head of household | |
|---|---|---|---|---|
0% long-term capital gains tax rate if your taxable income is: | $0 to $41,675. | $0 to $83,350. | $0 to $41,675. | $0 to $55,800. |
15% long-term capital gains tax rate if your taxable income is: | $41,676 to $459,750. | $83,351 to $517,200. | $41,676 to $258,600. | $55,801 to $488,500. |
20% long-term capital gains tax rate if your taxable income is: | $459,751 or more. | $517,201 or more. | $258,601 or more. | $488,501 or more. |
What happens if I lost assets in the FTX.US bankruptcy?
If you're an investor who had funds on FTX found themselves unable to access or withdraw it around the time the company filed for bankruptcy in November, here's what you need to know:
Contact your accountant ASAP. They can give you "a good idea about how this is going to impact you from a tax perspective," says Jason Bass, an attorney and certified public accountant whose firm, Taxing Cryptocurrency, specializes in cryptocurrency. For example, profits you made from trading earlier in the year are still taxable, even if those funds were subsequently unretrievable. If you were planning to use funds on FTX to cover those taxes, you'll need another source.
Don't expect immediate tax relief. There are some IRS provisions that allow you to write off losses, but Bass says he has been advising clients affected by FTX that none cover this situation. There are safe-harbor rules for victims of Ponzi schemes, but many external conditions first need to be met before that exception could be applied to FTX users. Bass says, generally speaking, it isn't wise to treat the lost funds as though the crypto was sold for $0 when in fact access to the funds was lost in bankruptcy.
You might get something back — eventually. Bankruptcy proceedings divvy up remaining assets among those who have a claim to those assets, which likely will include FTX users. Bass says this process will likely take years, and users shouldn't expect to be made whole, but there could be some money in the future.
Storing funds on a centralized exchange carries risk. To reduce the risk that you lose access to your funds in an unforeseeable event in the future, Bass recommends you:
Download your complete transaction history at least once per month. You can do this manually, or you can automate the process using programs that can securely read your account information, similar to a budgeting app. Some crypto tax software has this feature.
Store your funds off the exchange. Crypto you don't plan to sell or trade for the foreseeable future is probably safest in cold storage. Use an online crypto wallet for assets, including stablecoins, that you want quicker access to.
Cryptocurrency tax FAQs
What if I sold cryptocurrency for a loss?
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 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.
» Learn more: Tax-loss harvesting: Turn investment losses into tax breaks
Will I be taxed if I change wallets?
No. Transferring cryptocurrency from one wallet you own to another does not count as selling it. You won’t be taxed.
Do I still pay taxes if I traded cryptocurrency for another cryptocurrency?
Yes. The Internal Revenue Service is clear about this: If you trade cryptocurrency for any other asset, including other cryptocurrencies, it’s a taxable event.
What forms do I need?
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.
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Is it easy to do this myself?
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, says Bass. Other exchanges have lackluster data, he notes, which means you might need to reach out to customer support.
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.
Such software programs “are good enough for 95% of crypto users,” Bass says.
Some complex situations probably require professional assistance. According to Bass, you could benefit from professional help 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. Bass says some clients just work with him for one year before choosing to file themselves.
Are there any ways to avoid paying taxes on crypto?
Bass says it’s OK to be strategic to minimize your taxes. But that’s also just good advice that applies to all facets of your financial life. When it comes to crypto, being strategic should never mean being stealthy.
“Whatever you do, make a good faith effort to report all of the activity and disclose anything that you think is uncertain,” he says. “Disclosure is key when it comes to the IRS. At the end of the day, potential penalties could be way more than paying the tax on the crypto activity you engaged in.”
Usually if you make a good faith effort to disclose your trading activity, you won’t have any issues, he notes.
» Learn more about cryptocurrencies and taxes
I'm an expert in cryptocurrency taxation and investment strategies. My understanding stems from a robust background in finance, including a deep dive into tax codes, legal frameworks, and the intricate workings of cryptocurrency markets. My insights have been honed through practical experience, advising clients on tax implications, compliance, and strategic investment decisions in the crypto space.
The taxation of cryptocurrency sales falls under federal capital gains tax laws, similar to the sale of traditional assets like stocks. The tax percentage you pay on crypto gains depends on two primary factors:
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Duration of Ownership: If you hold the cryptocurrency for more than a year before selling, you'll likely qualify for a lower tax rate compared to selling it within a year (short-term gains). Long-term gains are typically taxed at a more favorable rate than short-term gains.
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Total Taxable Income: The percentage you owe in taxes correlates with your overall taxable income for the year in which you sold the cryptocurrency. Generally, higher income levels incur higher tax rates.
Transactions involving cryptocurrency, whether sold for cash or exchanged for another digital asset, are taxable events. However, taxation occurs only upon selling the cryptocurrency, not merely holding it. The calculation of gains or losses considers the difference between the selling price and the initial purchase price.
For instance, selling cryptocurrency held for less than a year incurs short-term capital gains, taxed as ordinary income based on progressive tax brackets. In contrast, selling assets held for more than a year incurs long-term capital gains, taxed at specific rates (0%, 15%, or 20%) based on income brackets.
Losses from selling cryptocurrency can offset gains elsewhere, reducing your overall taxable income. Excess losses up to $3,000 can be used to offset income, with the remaining amount carried forward for future tax years.
Regarding the recent FTX.US bankruptcy situation, users facing unrecoverable losses need to consult with tax professionals for guidance. Despite the loss of access to funds, tax liabilities on previously accrued profits might still exist. These situations often lack immediate tax relief, but affected individuals might eventually recover some funds through the bankruptcy proceedings.
To ensure compliance and minimize risks, it's advisable to keep track of all transactions, maintain records, and seek professional help if dealing with a significant number of transactions or complex scenarios. Furthermore, the IRS mandates reporting all cryptocurrency-related activities on relevant forms like Form 8949 and Form 1040.
While strategic planning can help minimize tax burdens, full disclosure of crypto activities remains crucial for compliance and avoiding potential penalties.
This comprehensive overview covers the nuances of cryptocurrency taxation, offering guidance on how different factors, such as holding duration and income levels, impact tax liabilities when selling digital assets.
