Crypto capital gains: how they're taxed and what to track

The IRS treats cryptocurrency as property, not currency. That single classification decides almost everything about the tax. When you sell, swap, or spend a coin for more than it cost you, you have a capital gain. When you get less than it cost you, you have a capital loss. Buying and holding, on its own, is not taxed.

A gain is not triggered by moving money to your bank. It's triggered the moment you dispose of the coin, even when no dollars ever land in your account.

When a gain actually happens

Each of these is a taxable disposal:

• Selling crypto for dollars or any other government currency.
• Trading one token for another, including swapping into a stablecoin like USDC.
• Spending crypto to pay for goods or services.

These are not disposals, and don't create a gain by themselves:

• Buying crypto with dollars and holding it.
• Moving coins between wallets or accounts you control.
• Receiving a gift of crypto, though you take on the giver's cost basis for when you later sell.

The trade-one-coin-for-another rule is the one people miss. Swapping Bitcoin for Ether is two events at once: a sale of the Bitcoin and a purchase of the Ether. The sale is what gets taxed, measured in dollars at the moment of the swap.

Short-term or long-term

How long you held the coin before disposing of it sets the rate. The clock starts the day after you acquire it and runs through the day you dispose of it.

The gap between the two rates is wide. Selling a coin at eleven months instead of thirteen can raise the tax on that gain by more than half. If you're close to the one-year mark and don't need to sell, waiting can be worth real money.

Working out the number

Your gain is the proceeds minus your cost basis. Proceeds are what you got, in dollars, at the time of the disposal. Basis is what you paid to acquire the coin, including the trading fee.

Say you bought 1 ETH for $2,000 including fees, then later sold it for $3,200. Your gain is $1,200. If you held it more than a year, that $1,200 is a long-term gain. If you swapped the ETH for another token instead of selling it, the math is the same: the token's dollar value at the swap is your proceeds.

Basis is the part people miss

The figure that trips up most crypto filers isn't the sale price. It's the basis. If you can't show what you paid, the IRS can treat your whole proceeds as gain, which inflates the bill for no reason.

For 2025 and later years, US exchanges report your sales on Form 1099-DA. Early versions of that form show gross proceeds but often leave your cost basis blank, so the number the IRS receives can look far larger than your real gain. Checking your own records against the form before you file is how you keep that number honest.

Two rules shape how you track basis now:

• Wallet by wallet. Starting in 2025, you track basis account by account rather than pooling every coin into one bucket. A one-time safe harbor let filers allocate older, untracked basis across their accounts at the start of that year.
• First in, first out by default. If you don't specify which units you sold, the IRS assumes you sold the oldest ones first. You can use specific identification instead when you can document exactly which coins left your wallet, which usually means clean records or tax software.

Losses, and the wash-sale gap

Losses are worth claiming. A capital loss offsets capital gains dollar for dollar. If your losses run past your gains, you can deduct up to $3,000 against ordinary income for the year and carry the rest forward to future years, with no expiration.

As of 2026, the wash-sale rule that stops stock investors from selling at a loss and rebuying within 30 days does not apply to crypto, because crypto is property rather than a security. Congress has floated closing that gap more than once, so confirm it still holds for the year you're filing before you count on it.

The like-kind myth

An old idea still goes around: that trading one coin for another is a tax-free "like-kind" exchange under Section 1031. It isn't. Since 2018, Section 1031 only covers real property, and it never clearly covered crypto before that. Every crypto-to-crypto trade is a sale for tax purposes.

What to report at filing time

1. Answer the digital asset question. Form 1040 asks whether you received, sold, or exchanged a digital asset during the year. Answer it truthfully.
2. List each disposal on Form 8949. Date acquired, date sold, proceeds, basis, and gain or loss, one line per sale.
3. Carry the totals to Schedule D. Your short-term and long-term totals land here and flow into the rest of your return.
4. Keep your records. Exchange exports, wallet history, and the basis behind every lot, in case a number is ever questioned.

None of this is strange once the coins are treated as what the IRS says they are: property, sold at a gain or a loss like anything else you own. The filers who run into trouble are usually the ones who never tracked basis, not the ones who owed a lot.