Key Takeaways
- In many countries, including the US and UK, crypto is treated as property, so selling, swapping or spending it can trigger capital gains tax.
- Crypto received as income, such as staking rewards, mining or payment for work, is usually taxed as income.
- Your gain equals what you received minus your cost basis, including fees.
- Good records of every transaction are essential, and rules vary by country, so consider professional advice.
Crypto taxes catch many investors by surprise. Swapping one coin for another, buying something with Bitcoin or earning staking rewards can all have tax consequences. This guide explains the core concepts in plain English. It focuses on general principles and US examples; always check the rules where you live.
How is crypto taxed?
Most major tax authorities, including the US Internal Revenue Service (IRS) and the UK's HM Revenue & Customs, treat cryptocurrency as property or an asset rather than currency. That means two broad types of tax can apply:
- Capital gains tax when you dispose of crypto for more than you paid.
- Income tax when you receive crypto as payment or reward.
Taxable vs non-taxable crypto events
| Usually taxable | Usually not taxable |
|---|---|
| Selling crypto for cash | Buying crypto with cash and holding it |
| Swapping one crypto for another | Moving crypto between your own wallets |
| Spending crypto on goods or services | Gifting crypto (within limits; rules vary) |
| Receiving staking or mining rewards (income) | Donating to qualified charities (may be deductible) |
| Getting paid in crypto (income) | Holding through price changes without selling |
Airdrops, hard forks, DeFi activity and NFTs can have more complex treatment.
How to calculate a capital gain
Capital gain or loss = proceeds - cost basis
Your cost basis is what you paid for the crypto, including fees. Your proceeds are what you received when you disposed of it, in your local currency.
Example: you buy 0.1 BTC for $5,000 plus $25 in fees, then later sell it for $7,000 and pay $30 in fees. Your cost basis is $5,025, your proceeds are $6,970 and your capital gain is $1,945. Try your own numbers with our crypto tax calculator.
Short-term vs long-term gains (US)
In the US, crypto held for one year or less produces short-term gains, taxed at your ordinary income tax rate. Crypto held for more than one year produces long-term gains, taxed at lower rates (0%, 15% or 20% depending on income). Holding longer can therefore reduce your tax bill. Other countries use different systems; the UK, for example, applies capital gains tax above an annual tax-free allowance.
Crypto income
Crypto received as income is generally taxed at its fair market value when you receive it. Examples include staking rewards, mining rewards, interest from lending platforms and crypto paid for work. That value then becomes your cost basis if you later sell. Learn more in what is crypto staking.
Capital losses
If you sell crypto for less than you paid, you have a capital loss. In the US, capital losses offset capital gains and up to $3,000 of ordinary income per year, with any remainder carried forward. Some investors "harvest" losses during bear markets to offset gains, but rules differ by country.
Reporting crypto in the US
- The main Form 1040 asks whether you received, sold, exchanged or otherwise disposed of digital assets during the year.
- Capital gains and losses are typically reported on Form 8949 and Schedule D.
- Crypto income is reported as ordinary income on the appropriate schedule.
- Brokers began issuing Form 1099-DA for digital asset sales starting with the 2025 tax year, increasing what the IRS sees automatically.
Record-keeping tips
- Record the date, amount, value in your currency and fees for every buy, sell, swap and transfer.
- Download transaction histories from every exchange regularly, in case an account closes.
- Label transfers between your own wallets so they're not mistaken for sales.
- Consider crypto tax software that imports exchange and wallet data.
- Track holdings with our free portfolio tracker.
Frequently asked questions
Do I pay tax if I don't sell my crypto?
Generally no. Simply holding crypto, even if its value rises, isn't a taxable event in most countries. Taxes usually apply when you sell, swap, spend or earn crypto.
Is swapping one crypto for another taxable?
In the US and many other countries, yes. A crypto-to-crypto swap is treated as disposing of the first asset.
What happens if I don't report crypto taxes?
Tax authorities increasingly receive data from exchanges. Failing to report can lead to penalties and interest. If you've missed past filings, consider speaking with a tax professional.
Are crypto losses tax-deductible?
In many countries, realized capital losses can offset capital gains, subject to limits.
This guide is for general educational purposes only and is not tax, legal or financial advice. Tax rules change and vary by country; consult a qualified tax professional about your situation.
This content is for educational purposes only and is not financial advice. Cryptocurrency investments are volatile and risky. Some links may be affiliate links — see our disclosure.