Based on the latest information available,
- General Tax Treatment: Cryptocurrencies are treated as property by the IRS, similar to stocks or real estate. This means transactions involving cryptocurrencies are subject to capital gains tax when sold at a profit or income tax when earned as income.
- Capital Gains Tax: When you sell, trade, or dispose of cryptocurrency for a profit, you're subject to capital gains tax. The rate depends on the holding period:
- Short-term Capital Gains: If you held the cryptocurrency for less than a year, gains are taxed at your ordinary income tax rate, which can range from 10% to 37% for 2025.
- Long-term Capital Gains: If held for over a year, the tax rate is generally lower, at 0%, 15%, or 20%, based on your income level.
- Income Tax: Earning cryptocurrency through activities like mining, staking, airdrops, or receiving it as payment for goods or services is considered taxable income. You'll pay tax on the fair market value of the cryptocurrency on the day you receive it, at your marginal income tax rate.
- Reporting Requirements: Starting in 2025, cryptocurrency exchanges will be required to report certain transactions to the IRS using Form 1099-DA, which will detail capital gains and losses. Until then, taxpayers are responsible for accurately reporting their crypto transactions.
- Taxable Events: Selling crypto for fiat, trading one crypto for another, or using crypto to purchase goods or services are all taxable events. Even if you don't receive fiat, the transaction is considered as if you sold the crypto for its fair market value in USD at the time of the transaction.
- Non-Taxable Events: Simply holding or transferring cryptocurrency between your own wallets is not a taxable event. However, detailed record-keeping is necessary for accurate tax reporting.
- Deductions and Losses: You can offset gains with losses through tax-loss harvesting, with a maximum deduction of $3,000 per year. Long-term holding can qualify for lower tax rates.
- Future Changes: The IRS has been actively refining its approach to cryptocurrency taxation. For instance, there's a transition to wallet-by-wallet tracking of cost basis starting January 1, 2025, to simplify tracking as cryptocurrencies move between wallets.
For the most accurate and detailed advice, especially given the evolving nature of these laws, it's advisable to consult with a tax professional who specializes in cryptocurrency or use specialized tax software like TokenTax or Koinly, which can help with calculations and reporting.