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Table of Contents:

Is cryptocurrency taxable?

How is my cryptocurrency taxed?

When do I need to report my crypto taxes?

Cryptocurrency capital gains tax rate

What are crypto capital losses?

How do I file crypto tax reports?

Cost Basis Methods

Tax-Free Crypto Transactions

Tax Rules on other Crypto Transactions

What are transaction fees in crypto transactions?

Other Tax Considerations

Is cryptocurrency taxable?

Yes, cryptocurrency is taxable in a variety of circumstances. Cryptocurrency is generally treated as property for US federal income tax purposes. The taxable events of crypto transactions are generally characterized as either capital gain (or loss) or ordinary income, depending on the type of transaction.

How is my cryptocurrency taxed?

Cryptocurrency could be subject to Income Tax or Capital Gains Tax. If you earn taxable crypto income, it may be taxed as ordinary income at its fair market value on the date you receive it.

On the other hand, if you are a typical crypto investor, who trades cryptocurrency as a capital asset, you may pay capital gain tax on the capital gain made from disposition of your crypto asset. In such a scenario, the capital gain/loss would be calculated based on the net proceeds (i.e. proceeds less any selling transaction fee) less the adjusted cost basis of the crypto.

When do I need to report my crypto taxes?

You need to report your taxable crypto transactions on your US Individual tax return (IRS Form 1040 and its state equivalents, where applicable). Subject to any applicable extensions, the federal income tax filing and payment deadline for 2022 tax year is April 17, 2023.

Cryptocurrency capital gains tax rate

The capital gains tax rate varies based on the holding period of the crypto and your tax bracket.

If you hold your crypto for 1 year or less, you will be subject to short-term capital gain/loss which is taxed at the same rates as ordinary income. On the other hand, you 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.

What are crypto capital losses?

In general, capital losses mean that the amount you spent when you bought or received the crypto (its adjusted cost basis) exceeds the proceeds you received for its sale You do not pay tax on capital losses, but you can offset your capital gains with those losses.

If your capital losses exceed your capital gains, you may offset the excess losses against your ordinary income, up to $3,000 per year. You may also carry forward the unutilized losses to future tax years.

How do I file crypto tax reports?

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

  1. Register a FREE account in Crypto.com Tax

  2. Import your crypto transactions in Crypto.com Tax

    Crypto.com Tax supports over 30 popular exchanges and wallets. Apart from the supported exchanges/ wallets, you may also add your transactions manually.

  3. Generate tax reports and check your tax summary

    You can export your reports in multiple formats (e.g. Form 8949, Schedule D, Capital gain/loss report, and Transaction history report) at no cost.

  4. Download the CSV files and import them into tax filing software

You may follow the steps in FAQ to import tax reports and file your crypto taxes with tax filing software (e.g. TurboTax, TaxAct).

*Crypto.com Tax does not provide tax advice and is not intended to be a substitute for consultation with your own tax professional.

Cost Basis Methods

When you have multiple crypto investments and transactions, cost basis methods dictate the way you calculate the cost basis of your crypto. Critically, cost basis methods affect how your capital gains are calculated.

The IRS generally suggests users choose First In First Out (FIFO) or Special identification to be the cost basis methods when calculating the taxes. However, the IRS generally does not compel users to choose any particular cost basis method, so other methods like Last In First Out (LIFO) or Highest In First Out (HIFO) can also be adopted.

You should use the method that is suggested by the local tax authority or your tax professional and apply the method consistently. If you want to change your cost basis method, please consult with your tax professional first. Please see our FAQ for more details on different cost basis methods.

Tax-Free Crypto Transactions

Is buying crypto taxable?

Crypto purchases with fiat money (e.g. USD --> BTC) are not subject to tax; however, it’s extremely important to keep track of the acquisition cost (including associated fees), as it becomes the cost basis of the crypto and will be used for calculating capital gains/losses for subsequent taxable events (i.e., dispositions/sales).

Do I pay tax when transferring crypto between my own accounts?

Generally, transferring crypto between your own accounts is tax-free when the associated fee is in fiat.

However, you may need to pay tax if the associated fee is in crypto as the difference between the FMV of the crypto disposed to settle the fee and its adjusted cost basis may result in capital gain/loss. See additional information on fees below.

Is swapping crypto taxable?

A token swap/migration occurs whenever an old coin is exchanged for a new coin (e.g. MCO converting to CRO). Depending on the specific circumstances related to the exchange, such exchanges may be taxable events and reportable on your tax return, regardless of whether the exchange results in capital gain/loss.

Moreover, if the associated fee is settled in crypto, there may be a difference between the FMV and the adjusted cost basis of the crypto used to settle the fee, which may result in capital gain/loss. See additional information on fees below.

Do I pay tax when donating crypto to charity?

Based on the Internal Revenue Code Section 170(c), if your payment is made directly to a qualified charitable organization, it is subject to the same rules that typically apply to charitable contributions (i.e. donations). Generally, you will not realize any income or capital gain/loss on such donations.

You may also be able to claim an income tax deduction for your donation on Schedule A of your tax return as an itemized deduction (if you itemize). The amount of deduction varies depending on your holding period of crypto and is subject to certain limits based on your Adjusted Gross Income (AGI). Subject to any limits that may apply to you, the tax-deductible amount would equal the FMV of the donated crypto 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.

You will also need to file Form 8283 if the donations are over USD 500. You will need to get the signature from the charitable organization to acknowledge the receipt.

Is it taxable when gifting crypto to others?

Sending a gift generally is not subject to capital gains/losses. However, as the donor of a gift, you may be subject to gift tax (note: this is a distinction from income tax; whereas income taxes are generally paid by the recipient of income, gift taxes are generally paid by the donor (i.e. sender) of the gift). You may need to file a gift tax return, Form 709, if the aggregate amount of your gift(s) to the same recipient (including the crypto gift(s) and any other gift(s) you’ve given to the same recipient) during any given tax year exceeds the applicable annual gift tax exclusion (USD 16,000 for the 2022 tax year). This threshold is not a per-transaction limit; to reiterate, this threshold applies to the aggregate of all your gifts to the same recipient during the same tax year. If you send out several gifts to the same person, you may be subject to gift tax if the total amount of all the gifts exceeds the threshold, even if each individual gift is under the threshold.

Tax Rules on other Crypto Transactions

Is selling crypto taxable?

Sales of crypto for fiat currency (e.g. BTC --> USD) is a taxable and reportable event. The capital gains/losses can be calculated by subtracting the cost basis and the associated fees from the proceeds. Your marginal tax rate for a disposition will be based on your holding period of the coins and your tax bracket. You may refer to our capital gains tax rate section above.

Example:

You bought 10 ETH for USD 10,000 on 1 Feb 2020 and then sold 5 ETH for USD 10,000 on 2 Feb 2021. You are subject to long-term capital gains tax.

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

Do I pay tax when trading one crypto for another?

Yes, exchanges of one crypto for another crypto (e.g. ETH --> CRO) are generally taxable and reportable events. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you receive.

Example:

You bought 10 ETH for USD 10,000 and then sold 5 ETH for 1 BTC. The 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

Do I pay tax when spending crypto?

Paying for goods and services with crypto generally results in a taxable event due to the disposition of the crypto. The capital gains/losses can be calculated by subtracting the cost basis from the FMV (fair market value) of the coins you spend.

Example:

You bought 10 ETH for USD 10,000 and then paid 5 ETH for some services. The FMV per ETH is USD 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

Receiving cryptocurrency other than direct purchase or transfer

Is mining crypto taxable?

Yes, crypto mining is considered taxable. The FMV of received coins (mining income) will be treated as your ordinary income at the time of receipt and subject to Income Tax.

Also, you may be subject to Capital Gains Tax when the mined coins are disposed (i.e. sold). The cost basis of received coins is equal to its FMV at the time of receipt. The capital gain/loss is calculated by subtracting the cost basis from the FMV of the crypto on the date of disposition.

If the crypto is considered to be a capital asset (i.e. mining as a hobby), the mining expenses (e.g. start-up cost, home office expenses) cannot be taken as a deduction to the resulting capital gain/loss. Those expenses can only be deducted on Schedule A as itemized deductions (if you itemize).

Example:

You received 10 ETH from mining where the FMV per ETH is USD 10,000. You then sold 1 ETH for USD 12,000.

Results:

Ordinary income: USD 10,000 * 10 = USD 100,000

Cost basis per coin: USD 10,000 per ETH

Proceeds: USD 12,000

Total cost basis for 1 ETH: USD 10,000

Capital gain/loss: USD 12,000 - 10,000 = USD 2,000

How are forks being taxed?

A hard fork takes place when there is a split on the new crypto that you currently hold. Similar to mining, the FMV of the new coins/tokens received due to hard forks will be treated as your ordinary income and subject to Income Tax.

Also, the new coins/tokens may be subject to Capital Gains Tax at dispositions. The cost basis of the received coins is equal to its FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

In addition, in a soft fork that does not create a new coin, you would not be deemed to have received any income.

How are airdrops being taxed?

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

In general, you will be subject to Income Tax when you receive new coins from airdrops. Similar to mining, the FMV of new coins received will be treated as your ordinary income. Also, the new coins may be subject to Capital Gains Tax at dispositions. The cost basis of the received coins is equal to its FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Do I pay tax when receiving crypto rewards?

You can get crypto rewards in several ways, e.g. stake/earn rewards and bonus, referral bonus.

In general, the reward income is taxable at the time of receipt. Similar to mining, the FMV of crypto rewards received will be treated as your ordinary income and subject to Income Tax. Also, you may be subject to Capital Gains Tax when you dispose of the crypto rewards. The cost basis of the received coins is equal to its FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Do I pay tax when receiving gifts in crypto?

Receiving a crypto gift is not taxable at the time of receipt. However, the received coins may be subject to capital gains/losses at dispositions. The calculation of capital gains/losses is the same as mining, but the cost basis is different from other receiving transactions.

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

  1. FMV is greater than the donor's adjusted cost basis: your cost basis is equal to the donor’s cost basis plus any gift tax paid by the donor

  2. FMV is less than the donor's adjusted cost basis: your cost basis can be either one of the following cases:

    1. Donor's cost basis plus any gift tax paid by the donor (if the selling price is greater than the donor’s cost basis)

    2. FMV of the received coin (if the selling price is less than FMV)

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

(If you are using Crypto.com Tax for tax filing, you can manually change the cost basis of received coins. Please follow the guide in the FAQ.)

Example 1: FMV > donor's cost basis

You received 10 ETH from friends as a gift where the FMV per ETH is USD 1,000. The donor's cost basis of the 10 ETH is USD 8,000. You then sold 5 ETH for 1 BTC where the FMV per BTC is USD 12,000.

Results:

Proceeds: USD 12,000

Your cost basis: USD 8,000/10 = USD 800 per ETH (i.e. Cost basis of donor)

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

Capital gain/loss: USD 12,000 - 4,000 = USD 8,000

Example 2: FMV < donor's cost basis

You received 10 ETH from friends as a gift and the FMV per ETH is USD 500. The donor's cost basis of the 10 ETH is USD 8,000. You then sold 5 ETH for the following price:

Selling price /Proceeds

Your cost basis

Total cost basis

Capital gain/loss

USD 12,000

The cost basis of donor

USD 800 * 5 = 4,000

USD 12,000 - 4,000 = 8,000

USD 2,000

FMV

USD 500 * 5 = 2,500

USD 2,000 - 2,500 = (500)

USD 3,000

Selling price

USD 3,000

USD 3,000 - 3,000 = 0

Is it taxable when receiving crypto payments? (e.g. salary payment)

If you receive a crypto payment as a form of compensation, it may be considered your employment income.

The FMV of received coins would be treated as part of your taxable employment income for that year and would be reportable on the individual federal income tax return (Form 1040). Depending on your state, it may be taxable and reportable on the state income tax return as well. The FMV of received coins may also be included in your Wage and Tax Statement (W-2). If you do not receive your W-2 statement from your employer or if your W-2 does not include crypto compensation that you received during the year, you should consult your tax professional about what to do. Similar to other employment income, any received coins may also be 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 federal and state tax returns even if the payor (e.g., employer) has not supplied appropriate documentation. It is your responsibility to consult a tax professional to ensure you have fulfilled your tax obligations.

The FMV of the crypto received as compensation will be your cost basis for such crypto assets in the event of a future disposition.

Example:

You received 10 ETH as salary where the FMV per ETH is USD 1,000. You then sold 5 ETH for 1 BTC where the 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 12,000 - 5,000 = USD 7,000

Note: USD 10,000 (10 ETH @ FMV of USD 1,000 each) should be reported as income from wages/salaries at the time of receipt.

Do I pay tax when getting a rebate in crypto?

Note: In general, on the Crypto.com platform, you can only get rebates from certain credit card and staking transactions (as of the time of this article’s publication). Please see the Crypto.com terms and conditions for eligibility criteria and other details on rebates.

In cases of rebates associated with spending transactions (e.g., credit card spends), rebates (including any received in the form of crypto coin/token) generally are not taxable at the time of receipt. However, like other cryptos, they are subject to capital gains/losses at disposition. The cost basis of the received coin/token is equal to the FMV at the time of receipt. The calculation of capital gains/losses is the same as mining.

Example:

You received 0.1 ETH from rebates where FMV per ETH is USD 10,000. You then sold 0.1 ETH for USD 1,200.

Results:

Proceeds: USD 1,200

Cost basis per coin: USD 10,000 per ETH

Total cost basis for 0.1 ETH: USD 10,000 * 0.1 = USD 1,000

Capital gain/loss: USD 1,200 - 1,000 = USD 200

How are the transaction costs on blockchain being taxed?

You may incur expenses when a blockchain transaction is approved/failed/canceled. For example, when a gas fee is charged due to a failed blockchain transaction.

These transaction costs may be subject to capital gains/losses. The capital gains/losses, where applicable, 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 you may be able to deduct as a “miscellaneous itemized deduction” under Schedule A. Note that this miscellaneous itemized deduction has been suspended for federal income tax purposes from 2018 through 2025 under the Trump administration’s Tax Cuts and Jobs Act, but it still exists for some states for state income tax purposes.

Example:

You bought 2 ETH for USD 2,000 and 0.1 ETH is charged due to a failed blockchain transaction where the FMV per ETH is USD 1,500.

Results:

Proceeds (due to disposition of 0.1 ETH to cover the gas fee): USD 1,500 * 0.1 = USD 150

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

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

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

Note: Investment expense of USD 150 may be tax deductible for state income tax purposes.

How is the margin trading of crypto taxed?

Margin trading of crypto would generally incur capital gain/loss in the following cases:

- Closing the position

- Payment of margin interest with crypto

- Forced sale of your collateral by exchanges (i.e. a margin call)

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.

What are transaction fees in crypto transactions?

Fees can show up in all kinds of cryptocurrency transactions and is often the most cryptic part when calculating taxes. The tax treatment of fees depends on whether the fees are incurred in taxable or non-taxable transactions. You may also need to consider if the transaction fee is paid in cryptocurrency.

How is the transaction fee taxed in non-taxable events?

Typically in a non-taxable event (e.g. buying crypto), the FMV of the fee will be added to the cost basis of the resulting coins. Thus, in this example, the transaction fees you pay upon purchase will be considered as part of the cost basis if and when a disposition eventually happens and will reduce the capital gain.

However, transfer and swap transactions generally are exceptions to the aforementioned mechanism. The fees associated with such transactions generally are not included in the cost basis. However, these types of transaction fees may be considered investment expenses and may be deductible as a “miscellaneous itemized deduction” under Schedule A. Note: this miscellaneous itemized deduction is currently suspended for federal income tax purposes, but it may still exist in your state for state income tax purposes.

Example 1:

You bought 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:

You bought 10 ETH for USD 10,000 in account A. You then transferred 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 (may be tax deductible for state income tax purposes)

How are transaction fees taxed in taxable events?

In a taxable event (e.g. selling/trading crypto), the FMV of the fee is generally considered to be an expense, which is typically deducted from the proceeds when calculating capital gain/loss.

Example:

You bought 10 ETH for USD 10,000. You then sold 5 ETH for USD 10,000, with a selling fee of USD 100.

Results:

Proceeds: USD 10,000

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

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

Total expense: USD 100

Net Proceeds: USD 10,000 - 100 = USD 9,900

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

What if the transaction fee is in cryptocurrency?

When the transaction fee is in crypto, it should be valued at FMV and would generally separately result in a capital gain/loss as it would be deemed a disposition of capital property. Therefore, in taxable events, your transaction may result in 2 separate reportable capital gains/losses, each of which should be separately listed in your transaction records.

For non-taxable events, you would 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 coin's cost basis.

Example 1: Buying crypto

You bought 10 ETH for USD 10,000. You then bought 5,000 CRO for USD 1,000 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

Transaction fee of 0.1 ETH: USD 2,000 * 0.1 = USD 200

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: Transferring crypto

You bought 10 ETH for USD 10,000 in account A. You then transferred 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 2,000 * 0.1 = USD 200 (can be tax deductible for state income)

Example 3: Selling crypto

You bought 10 ETH for USD 10,000 and then sold 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 sale.

Results:

Proceeds: USD 10,000

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

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 on transaction: USD 9,800 - 5,000 = USD 4,800

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

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

Other Tax Considerations

Do I need to keep records of crypto transactions?

It is important to keep track of your crypto transactions as well as the market value of the crypto at critical junctures throughout these activities. The IRS provides general guidance that a taxpayer should maintain records that are sufficient to establish the positions taken on the taxpayer’s tax returns – it is the taxpayer’s burden and obligation to maintain sufficient records to substantiate what they report on their tax returns. For example, you should keep records of receipts and sales documenting the date of transactions, price, and fair market value of crypto.

Since the IRS can generally audit your tax return within the last 6 years (and longer in some situations), it would be prudent to keep records for at least 6 years to substantiate your tax positions.

If you are a Crypto.com Tax user, it's easy to keep proper records of your crypto activities by simply syncing your wallets/exchanges or importing your transactions on Crypto.com Tax.

Does the Wash Sale rule apply to crypto?

The wash sales rule does not apply to crypto because it is classified as property by the IRS. This rule only applies to securities. Therefore, you can repurchase a crypto asset within 30 days of a sale that resulted in a capital loss without being subject to the wash sale rule.

How can the IRS track crypto?

Despite the anonymous nature of crypto, the IRS can still track your crypto in different ways:

  • Some crypto exchanges will send Form 1099 to the IRS alerting that a taxpayer is trading crypto.

  • All major crypto exchanges are required to complete Know-Your-Customer (KYC) checks on users. The IRS can request data from crypto exchanges for tax compliance purposes.

  • The IRS may also use blockchain analytics tools to identify the crypto activity of digital wallets and tie them to individuals when they suspect criminal activities.

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