The General Rules of Cryptocurrency Tax in the United States

Disclaimer: This page is for general information purposes only and should not be used as a substitute for consultation with tax professionals. The Notice 2014-21 and the FAQ on the IRS website do not address all the various cryptocurrency transactions and resulting tax implications. Guidance from the Internal Revenue Services (IRS) may be supported or challenged by the US courts.

Is cryptocurrency taxable?

Cryptocurrency is treated as property for US tax purposes. The taxable events of crypto transactions are treated as either capital gain/loss or ordinary income, depending on the type of transactions the users have done.

How is my cryptocurrency taxed?

Basically, if you are a typical crypto investor, who treats trading cryptocurrency as a capital asset, your taxable income will be calculated by using the net proceeds (proceeds less any selling transaction fee) less the adjusted cost base of the crypto. Any income from a disposition is considered as capital gain, which is subject to tax.

Crypto.com Tax supports users who are engaging in cryptocurrency transactions for investment purposes only. Users participating in cryptocurrency transactions that constitute ‘business activities' cannot apply these calculations for the US income tax reporting. Therefore, this may not be the right tool for you if your crypto transactions constitute business activities as opposed to hobby transactions.

Cryptocurrency tax deadline

Taxable cryptocurrency transactions need to be reported on your US Individual tax return (Form 1040). The original federal income tax filing and payment deadline were postponed by the IRS from April 15 to May 17, 2021.

How do I file crypto tax reports?

Crypto.com Tax is a user-friendly tax product to generate tax reports for tax filing. Please follow the below steps to finish the crypto tax filing.

  1. Register your account in Crypto.com Tax

  2. Import your transactions in our product in 4 ways:

    1. API synchronization with the supported wallets/exchanges

    2. Import the csv file exported from our supported wallets/exchanges

    3. Import our Crypto.com Tax CSV for the non-supporting wallets/exchanges

    4. Manually add your transactions

  3. Generate the below tax reports in the page of Tax Reports :

    1. Form 8949. This form records all the details of short term and long term capital gains/losses. The total of short term and long term capital gain/loss will flow to the Schedule D. Note that if you decide to use tax filing software, the form might already be included.

    2. Schedule D. Attach this schedule with your individual tax form 1040. Note that if you decide to use tax filing software, the form might already be included.

    3. Capital gain/loss csv file, including the amount of Net Proceeds, Cost basis, Short term and Long term capital gain/loss

    4. Transaction history csv file for keeping the books and records

    5. Generate the below csv files to import into tax filing softwares. Users can follow the steps in FAQ for the import.

      1. TurboTax Online

      2. TurboTax CD/Download

      3. TaxAct

Tax Rules on Crypto Transactions

Buying cryptocurrency (e.g. USD → BTC)

Buying cryptocurrency is not considered a taxable event. However, it’s extremely important to keep track of the acquisition cost (with associated fees), as it becomes the cost basis of the cryptocurrency and will be used for calculating capital gains/losses for subsequent taxable events (i.e. dispositions etc.)

Selling cryptocurrency (e.g. BTC → USD)

Selling cryptocurrency for fiat currency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis and the associated fees from the net proceeds.

If the holding period of the coins equal or less than 1 year, users will be subject to short-term capital gain/loss which is taxed at the same rates as ordinary income. On the other hand, users will be subject to long term capital gains tax rate if the holding period is over 1 year. Please refer to Topic No.409 for more details about the tax rates.

Example:

  • Buy 10 ETH for USD 10,000 on 1 Feb 2020

  • Sell 5 ETH for USD 10,000 on 2 Feb 2021

Results:

  • Cost basis per coin: USD 10,000/10 = USD 1,000 per ETH

  • Proceeds: USD 10,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Long-term capital gain/loss: USD 10,000 - 5,000 = USD 5,000

Trading one cryptocurrency for another (eg. BTC → ETH)

Selling cryptocurrency for another cryptocurrency is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you receive.

Example:

  • Buy 10 ETH for USD 10,000

  • Sell 5 ETH for 1 BTC (FMV per BTC is USD 12,000)

Results:

  • Cost basis per coin: USD 10,000/10 = USD 1,000 per ETH

  • Proceeds: USD 12,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Capital gain/loss: USD 12,000 - 5,000 = USD 7,000

Sending cryptocurrency to others

Payment

Paying cryptocurrency for services and goods is considered a taxable event. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you send.

Example

  • Buy 10 ETH for USD 10,000

  • Send 5 ETH for some service (FMV per ETH is 2,000)

Results:

  • Cost basis per coin: USD 10,000/10 = USD 1,000 per ETH

  • Proceeds: USD 2,000 * 5 = USD 10,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Capital gain/loss: USD 10,000 - 5,000 = USD 5,000

Gift

Sending a gift is not subject to capital gains/losses. However, the donor may need to file a gift tax return Form 709 if the gift exceeds USD 15,000. This threshold does not limit to one single transaction. If the donor sends out several gifts to a person and does not exceed USD 15,000, no gift tax is required.

Donations

Based on the Internal Revenue Code Section 170(c), if the payment is made directly to a qualified charitable organization, it will be considered as a donation. No income and capital gain/loss will be recognized by the donor.

In general, the donation of cryptocurrency is tax-deductible. it will be deductible on Schedule A as an itemized deduction. The amount of deduction varies depending on the user’s holding period of the cryptos. The tax-deductible amount would be at its FMV at the time of donation if the donor held it for more than one year. If it was held for one year or less at the time of donation, the deductible amount will be the lesser of its cost basis or the FMV at the time of the contribution.

Besides, users need to file a Form 8283 if the donations are over USD 500. Donors need to get a signature from the charitable organization to acknowledge the receipt.

Receiving cryptocurrency other than direct purchase or transfer

Both receiving cryptocurrency and its subsequent disposal are considered taxable events except receiving the crypto as a gift. This will apply to multiple cases, including forks, airdrops, mining, payment (e.g. employment income) and receiving rewards (e.g. staking rewards or referral bonus). That means all the cryptocurrency you receive will be taxable as ordinary income at FMV. The income should be reported on Form 1040 and its Schedule 1. Also, they will be subject to capital gains/losses at future dispositions. The gain/loss is calculated by subtracting the cost basis from the FMV of the cryptocurrency on the date of disposition.

Mining

In general, the FMV of the received coins (mining income) is taxable as ordinary income at the time of receipt. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The gain/loss is calculated by subtracting the cost basis from the FMV of the cryptocurrency on the date of disposition.

If the cryptocurrency is considered to be a capital asset (mining as a hobby) then current expenses such as start-up cost and home office expenses cannot be taken as a deduction to the resulting capital gain/loss. Those mining expenses can only be deducted on Schedule A as itemized deductions.

Example:

  • Receive 10 ETH from mining (FMV per ETH is USD 10,000)

  • Sell 1 ETH for USD 12,000

Results:

  • Ordinary income: USD 100,000

  • Cost basis per coin: 10,000 per ETH

  • Proceeds: USD 12,000

  • Total cost basis for 1 ETH: 10,000

  • Capital gain/loss: USD 2,000

Forks

Hard fork takes place when there is a split on the new cryptocurrency that you currently hold. Similar to mining, users will have ordinary income equal to the FMV of the new cryptocurrency when it is received. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

In addition, a soft fork does not create a new coin so you do not receive any income when it happens.

Airdrops

Airdrops are basically some free coins you received from a marketing campaign or events.

In general, coins from airdrops are taxable at the time of receipt. Similar to mining, users will have ordinary income equal to the FMV of the new cryptocurrency when it is received. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Rewards

You can get crypto rewards in several ways, including but not limited to:

  • Stake rewards/bonus

  • Referral bonus

In general, the reward income is taxable at the time of receipt. Similar to mining, users will have ordinary income equal to the FMV of the new cryptocurrency when it is received. Also, they are subject to capital gains/losses at dispositions. The cost basis of the received coins is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Gift

The received coins from the gift are not taxable at the time of receipt. However, they are subject to capital gains/losses at dispositions. The calculation of capital gains/losses is the same as mining. However, the ways to determine the cost basis is different from other receiving types.

The cost basis for cryptocurrency received as a gift varies depending on whether the FMV on the date of receipt is greater or less than the donor’s cost basis:

  1. When the FMV of the received coins is greater than the donor’s adjusted cost basis, the cost basis is equal to the donor’s cost basis plus any gift tax paid by the donor

  2. When the FMV of the received coins is less than the donor’s adjusted cost basis, the cost basis can be either one of the following cases:

    1. The cost basis of the donor plus any gift tax paid by the donor when the selling price is greater than the donor’s cost basis

    2. FMV of the received coin when the selling price is less than FMV

    3. Selling price if the selling price is greater than FMV of the gift but less than the donor’s cost basis

Users can manually change the cost basis of the received coins by clicking the set net worth button in the Edit Transaction Page. Please follow the guide in the FAQ.

Example 1:

  • Receive 10 ETH from friends as a gift (FMV per ETH is USD 1,000)

  • The cost basis of the 10 ETH from the donor is USD 8,000

  • Sell 5 ETH for 1 BTC (FMV per BTC is USD 12,000)

Results:

  • Proceeds: USD 12,000

  • Cost basis = Cost basis of donor

  • Total cost basis for 5 ETH: USD 800 * 5 = USD 4,000

  • Capital gain/loss: USD 8,000

Example 2a:

  • Receive 10 ETH from friends as a gift (FMV per ETH is USD 500)

  • The cost basis of the 10 ETH from the donor is USD 8,000

  • Sell 5 ETH for 1 BTC (FMV per BTC is USD 12,000)

Results:

  • Proceeds: USD 12,000

  • Cost basis = Cost basis of donor

  • Total cost basis for 5 ETH: USD 800 * 5 = USD 4,000

  • Capital gain/loss: USD 8,000

Example 2b:

  • Receive 10 ETH from friends as a gift (FMV per ETH is USD 500)

  • The cost basis of the 10 ETH from the donor is USD 6,000

  • Sell 5 ETH for USD 2,000

Results:

  • Proceeds: USD 2,000

  • Cost basis = FMV

  • Total cost basis for 5 ETH: USD 500 * 5 = USD 2,500

  • Capital gain/loss: (USD 500)

Example 2c:

  • Receive 10 ETH from friends as a gift (FMV per ETH is USD 500)

  • The cost basis of the 10 ETH from the donor is USD 7,000

  • Sell 5 ETH for USD 3,000

Results:

  • Proceeds: USD 3,000

  • Cost basis = Selling price

  • Total cost basis for 5 ETH: USD 600 * 5 = USD 3,000

  • Capital gain/loss: 0

Payment (Salary)

If the cryptocurrency received is a payment to you as a form of compensation, it may be considered as your salary. The FMV of the received coins become taxable employment income of that year and should be reported on the Individual Income tax form (Form 1040) from the Wage and Tax Statement (W-2). If you do not receive your W-2 statement from your employer, you should either call the IRS and they will send a letter to your employer or estimate your wages and taxes withheld manually with supporting financial statements. Received coins from wages may be also subject to income tax withholding. See Publication 15 (Circular E), Employer's Tax Guide for further details.

Each individual is responsible for calculating and reporting income on their US tax return even if a payor has not supplied appropriate documentation. The FMV of the cryptocurrency received as salary will be the cost basis for future disposition.

Example:

  • Receive 10 ETH as salary (FMV per ETH is USD 1,000)

  • Sell 5 ETH for 1 BTC (FMV per BTC is USD 12,000)

Results:

  • Proceeds: USD 12,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Capital gain/loss: USD 7,000

  • USD 10,000 should be reported as income from wages/salaries at the time of receipt

Transferring cryptocurrency between your own accounts

Transferring cryptocurrency between your own accounts is generally not considered a taxable event when the associated fee is in fiat. However, a portion of the transaction may be taxable if the associated fee is in cryptocurrency as there will be a difference between the FMV of the cryptocurrency disposed to settle the fee versus its adjusted cost basis. See additional information on fees below.

Swapping a cryptocurrency to another one

Token migration means whenever an old coin swaps with a new coin e.g. MCO converting to CRO. It is generally not considered a taxable event when the associated fee is in fiat. Basically, the tax logic is the same as a transfer. A portion of the transaction may be taxable if the associated fee is in cryptocurrency as there will be a difference between the FMV of the cryptocurrency disposed to settle the fee versus its adjusted cost basis. See additional information on fees below.

Cost

Users may incur expense when the blockchain transaction is approved/failed/cancelled. For example, a gas fee is charged due to a failed blockchain transaction. We call this type of transaction Cost.

It can be subject to capital gains/losses. The capital gains/losses can be calculated by subtracting the cost basis from the FMV of the coins charged. The FMV of the coins should be considered as an investment expense which could be deducted as a “miscellaneous itemized deduction” under Schedule A. Note that this miscellaneous itemized deduction has been suspended for federal tax purposes from 2018 through 2025 under ex-President Trump’s Tax Cuts and Jobs Act, but it still exists for most states for state income tax purposes.

Example:

  • Buy 2 ETH for USD 2000

  • 0.1 ETH is charged due to a failed blockchain transaction (FMV per ETH is USD 1,500)

Results:

  • Cost basis per coin: USD 2,000/2 = USD 1,000

  • Proceeds: USD 1,500 * 0.1 = USD 150

  • Total cost basis for 0.1 ETH: USD 1,000 * 0.1 = USD 100

  • Capital gain/loss: USD 150 - 100 = USD 50

  • Investment expense: USD 150 (can be tax-deductible for state income)

Margin trading

Margin trading of cryptocurrency involves capital gain/loss including the below cases:

  • Closing the position

  • Payment of interest by cryptocurrency

  • The forced sale of your collateral by exchanges

Crypto.com Tax does not support margin trading transactions at this moment. Please consult your tax advisor if you’re actively involved in margin trading.

Other Tax Rules

Fee treatment

Fees can show up in all kinds of cryptocurrency transactions and is often the most cryptic part when calculating taxes. To understand the fee treatment thoroughly, we need to consider the following two cases.

Fee in nontaxable events (e.g. buy)

Typically in a nontaxable event, the FMV of the fee will be added to the cost basis of the resulting coins. The idea is simple - the fees you pay are saved for your future benefits, as they will be considered as part of the cost basis when a disposition happens, offsetting the capital gain.

However, transfer and swap are the exceptions. The associated fee from them does not increase the cost basis because its intention is to hold the cryptocurrency for investment purposes rather than disposition/acquisition of crypto. The transaction fee should be considered as an investment expense, which could be deducted as a “miscellaneous itemized deduction” under Schedule A. Note that this miscellaneous itemized deduction has been currently suspended for federal tax purposes, but it still exists for most states for state income tax purposes.

Example 1:

  • Buy 10 ETH for USD 10,000, with a purchase fee of USD 100

Results:

  • Cost basis per coin: USD (10,000 + 100) / 10 = USD 1,010 per ETH

Example 2:

  • Buy 10 ETH for USD 10,000 in account A

  • Transfer 5 ETH from account A to account B, with a transfer fee of USD 50

Results:

  • Cost basis per coin in account A: USD 10,000/10 = USD 1,000 per ETH

  • Cost basis per coin in account B: USD (1,000 * 5 ) / 5 = USD 1,000 per ETH

  • Investment expense: USD 50 (can be tax deductible for state income)

Example 3:

  • Buy 5 MCO for USD 20

  • Swap 5 MCO for 100 CRO due to MCO deprecation

Results:

  • Cost basis per MCO: USD 20 / 5 = USD 4

  • Cost basis per CRO: USD 20 / 100 = USD 0.2

Fee in taxable events (e.g. sell, trade, send-payment)

In a taxable event, the FMV of the fee is considered as an expense, which is typically deducted from the proceeds.

Example:

  • Buy 10 ETH for USD 10,000

  • Sell 5 ETH for USD 10,000, with a selling fee of USD 100

Results:

  • Cost basis per coin: USD 10,000/10 = USD 1,000 per ETH

  • Proceeds: USD 10,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Total expense: USD 100

  • Net Proceeds: USD 9,900

  • Capital gain/loss: USD 9,900 - 5,000 = USD 4,900

What if your fee is in cryptocurrency?

This is the most confusing part of all, but we have you covered. When your fee is in cryptocurrency, it should be valued at FMV and will separately result in a capital gain/loss as it is considered a disposition of capital property. Therefore in taxable events, your transaction can contain up to 2 capital gains/losses, and they should be separately listed on your transaction records.

For non-taxable events, you’ll just need to calculate the capital gain/loss from the fee. Note that in a transfer transaction, the FMV of the fee cannot be added to the resulting coins’ cost basis.

Example 1:

  • Buy 10 ETH for USD 10,000

  • Buy 5,000 CRO for USD 1000 with a transaction fee of 0.1 ETH

  • Assume the ETH price has gone up to USD 2,000 on the day of buying CRO

Results:

  • Cost basis per ETH: USD 10,000/10 = USD 1,000 per ETH

  • Cost basis per CRO: USD (1,000 + 200)/5,000 = USD 0.24 per CRO

  • Capital gain/loss from the fee = USD (2,000 - 1,000) * 0.1 = USD 100

Example 2:

  • Buy 10 ETH for USD 10,000 in account A

  • Transfer 5 ETH from account A to account B, with a transfer fee of 0.1 ETH

  • Assume the ETH price has gone up to USD 2,000 on the day of transfer

Results:

  • Cost basis per coin in account A: USD 10,000/10 = USD 1,000 per ETH

  • Cost basis per coin in account B: USD (1,000 * 5 ) / 5 = USD 1,000 per ETH

  • Capital gain/loss from the fee = USD (2,000 - 1,000) * 0.1 = USD 100

  • Investment expense: USD 200 (can be tax deductible for state income)

Example 3:

  • Buy 10 ETH for USD 10,000

  • Sell 5 ETH for USD 10,000, with a selling fee of 0.1 ETH

  • We know the ETH price is USD 2,000 on the day of sell

Results:

  • Cost basis per coin: USD 10,000/10 = USD 1,000 per ETH

  • Proceeds: USD 10,000

  • Total cost basis for 5 ETH: USD 1,000 * 5 = USD 5,000

  • Total expense: USD 2,000 * 0.1 = USD 200

  • Net Proceeds: USD 10,000 - 200 = USD 9,800

  • Capital gain/loss from the transaction: USD 9,800 - 5,000 = USD 4,800

  • Capital gain/loss from the fee: USD (2,000 - 1,000) * 0.1 = USD 100

  • Total capital gain/loss: USD 4,800 + 100 = 4,900

Wash Sale rules

The Wash sales rule does not apply to cryptocurrency because it is classified as property by the IRS. This rule only applies to securities. Therefore, users can repurchase crypto within 30 days of a sale with loss, which is one of the ways of tax-loss harvesting.

Cost Basis Methods

The IRS suggests users choose First In First Out (FIFO) or Special identification to be the cost basis methods when calculating the taxes. However, the IRS does not restrict users to choose which cost basis methods so other methods like Last In First Out (LIFO) or Highest In First Out (HIFO) can also be adopted. Please see our FAQ for more details about the different cost basis methods.

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