What Triggers a Crypto Capital Gains Event?
Cryptocurrency taxable events and tax treatment
| Action | Tax Treatment | Rate |
|---|---|---|
| Sell crypto for USD | Capital gain or loss | Short or long-term capital gains rate |
| Trade Bitcoin for Ethereum | Capital gain on Bitcoin sold | Short or long-term on BTC; new basis established for ETH |
| Use crypto to buy goods or services | Capital gain on crypto used | Gain = fair market value at use minus basis |
| Receive crypto as payment for services | Ordinary income at receipt | Regular income rates; new basis = FMV at receipt |
| Mining rewards | Ordinary income at fair market value when received | Regular income rates; becomes basis for future sale |
| Staking rewards | Generally ordinary income when received (IRS treats as income) | Regular income rates |
| Crypto gift received | Donor’s basis and holding period | Capital gain when eventually sold at recipient’s choice |
| Hard fork or airdrop | Ordinary income at fair market value received | Regular income rates |
Tracking Crypto Cost Basis: The Challenge
Crypto tax calculation is complicated by the number of transactions and the difficulty of tracking basis across multiple purchases, exchanges, and platforms. Your basis for each unit of crypto is what you paid for it (plus any fees). When you sell, you need to match specific units sold to their purchase price. FIFO (first in, first out) is the default if you do not specify.
- FIFO: First-purchased crypto is treated as sold first — often not tax-optimal
- Specific identification: Choose which units to sell; can minimize gain or maximize losses
- HIFO (highest in, first out): Not an IRS-accepted method without specific identification documentation
- Required records: Date acquired, amount paid, date sold, proceeds, and gain/loss for every transaction
- Crypto tax software (Koinly, TaxBit, CoinTracker): Automates basis tracking across exchanges
- Most exchanges issue Form 1099-DA starting in 2025 — review for accuracy
Trading Bitcoin for Ethereum is not a like-kind exchange (the 1031 exchange rules apply only to real property since 2018). Every crypto-to-crypto trade triggers a capital gain or loss on the sold cryptocurrency. Active crypto traders who make hundreds of trades per year can have thousands of taxable events to report.
Crypto Tax-Loss Harvesting in Bear Markets
Unlike stocks, cryptocurrency is not subject to the wash sale rule (as of 2025 — legislation to extend wash sale rules to crypto has been proposed but not enacted). This means you can sell crypto at a loss to harvest the tax benefit and immediately repurchase the same cryptocurrency without waiting 30 days. This makes crypto bear markets uniquely advantageous for tax-loss harvesting compared to stock markets.
Calculate Your Crypto Capital Gains Tax
Enter your Bitcoin or other crypto purchase price, sale price, and holding period to see your capital gains tax.