If you bought, sold, traded, or earned cryptocurrency in 2024, you owe taxes on it. The IRS doesn’t treat Bitcoin or Ethereum like cash. They treat them like stocks or real estate - as property. That means every time you sell, trade, or spend crypto, you could trigger a taxable event. And if you made a profit, you owe capital gains tax.
How Crypto Capital Gains Work
Capital gains tax kicks in when you sell crypto for more than you paid for it. It doesn’t matter if you traded Bitcoin for Ethereum, bought a laptop with Dogecoin, or sold your Ethereum for dollars. Any disposal of crypto that results in a profit is taxable. Losses can offset gains, but you still have to report them.
The key factor is how long you held the asset. If you held it for more than a year, you pay long-term capital gains tax. If you held it for a year or less, you pay short-term capital gains tax - which is the same as your regular income tax rate.
2025 Tax Rates for Crypto Gains
For the 2025 tax year (filed in 2026), here’s what you’ll pay based on your income and filing status:
- Long-term capital gains (held over 365 days):
- 0% if your taxable income is $48,350 or less (single), $96,700 or less (married filing jointly)
- 15% if your income falls between those thresholds and $533,400 (single) or $600,050 (married)
- 20% if you earn more than those upper limits
- Short-term capital gains (held 365 days or less): Taxed at your ordinary income rate - 10% to 37% depending on your income bracket.
For example, if you bought 1 ETH for $3,000 in January 2024 and sold it for $4,500 in December 2024, you made a $1,500 profit. Since you held it less than a year, that $1,500 is taxed as ordinary income. If you’re in the 22% tax bracket, you owe $330.
But if you held that same ETH until March 2025 and sold it for $4,500, you’d qualify for long-term rates. If your income was under $48,350, you’d pay 0% - meaning no tax at all.
What Counts as a Taxable Event?
Not every crypto action triggers a tax bill. Here’s what does:
- Selling crypto for fiat (USD, EUR, etc.)
- Trading one crypto for another (BTC → ETH)
- Using crypto to buy goods or services
- Gifting crypto (if over $18,000 in value)
- Receiving crypto as payment for work or services
And here’s what doesn’t:
- Buying crypto with USD
- Transferring crypto between your own wallets
- Donating crypto to a qualified nonprofit (you may even get a deduction)
- Hard forks without receiving new tokens
Staking rewards, mining income, and airdrops? Those count as ordinary income. You pay tax on the fair market value in USD on the day you received them. If you got 0.5 ETH worth $1,800 as a staking reward, you report $1,800 as income - even if you never sold it.
New Reporting Rules Starting in 2025
Starting January 1, 2025, centralized exchanges like Coinbase, Kraken, and Binance.US must report your crypto sales to the IRS using a new form: Form 1099-DA. This form will show the total amount you sold, the date, and the asset type.
Starting in 2026, they’ll also have to report your cost basis - what you originally paid for the asset. That’s huge. Before, the IRS only saw what you sold. Now they’ll know what you bought it for. That makes it much harder to hide gains.
But here’s the catch: decentralized exchanges (DEXs) like Uniswap or wallets like MetaMask don’t have to report anything. If you traded on a DEX or moved crypto from an exchange to your personal wallet and then sold it, the IRS won’t get a report. But you still have to report it yourself.
And yes - the IRS is watching. They’ve hired 900 new agents trained in blockchain analysis. They’re using tools from Chainalysis and CipherTrace to trace transactions across wallets. If you didn’t report a $10,000 trade you made on a DEX, they’ll find it.
How to Calculate Your Cost Basis
Your cost basis is what you paid for the crypto, including fees. If you bought 0.5 BTC for $25,000 and paid $100 in gas fees, your cost basis is $25,100. When you sell, you subtract that from your sale price to find your gain.
The IRS allows four methods to calculate cost basis:
- FIFO - First In, First Out. Default method. You use the price of your oldest coins first.
- LIFO - Last In, First Out. You use the price of your most recent purchase.
- HIFO - Highest In, First Out. You use the highest purchase price to minimize gains.
- Specific Identification - You pick exactly which coins you’re selling. Requires detailed records.
Most people use FIFO because it’s automatic in tax software. But if you’re trying to minimize taxes, HIFO can be smarter - especially if you bought crypto at different price points over time.
Tools to Help You Stay Compliant
Manually tracking hundreds of trades across multiple wallets and exchanges? That’s a nightmare. Most people use crypto tax software:
- CoinLedger - $49-$249/year. Good for beginners and moderate traders.
- Koinly - $49-$399/year. Strong with DeFi and NFTs.
- TokenTax - $49-$499/year. Best for complex portfolios.
These tools connect to your wallets and exchanges, pull your transaction history, and auto-calculate gains/losses. But they’re not perfect. A 2024 survey found 58% of users overpaid taxes because their software didn’t account for gas fees or failed to track staking rewards correctly.
Pro tip: Always check your cost basis manually for your biggest trades. A $10,000 error on one trade can cost you hundreds in taxes.
What Happens If You Don’t Report?
The IRS is cracking down. In 2024, they allocated $80 million to crypto tax enforcement. They’re sending out letters to people who didn’t report crypto on their tax returns. If you ignore them, you could face penalties - up to 25% of the unpaid tax, plus interest.
And audits are rising. The IRS plans to integrate blockchain analytics into its automated underreporter program by Q3 2025. That means if your wallet shows $50,000 in sales but your return says $0, you’re likely to get flagged.
One Reddit user lost $3,200 because his tax software didn’t include gas fees in his cost basis. He ended up paying $450 to a CPA to fix it. Don’t be that person.
Special Cases: NFTs and Collectibles
NFTs are treated as collectibles by the IRS. That means if you hold an NFT for more than a year and sell it for a profit, you pay up to 28% in long-term capital gains - no matter your income level. That’s higher than the standard 20% cap for other crypto.
So if you bought an NFT for $2,000 and sold it for $10,000 a year later, your $8,000 gain is taxed at 28% - that’s $2,240 in taxes. No breaks, no exemptions.
What’s Coming Next
The Biden administration is pushing to apply the wash sale rule to crypto. Right now, you can sell a coin at a loss to reduce your taxes, then buy it back the next day. That’s called tax loss harvesting. If the wash sale rule passes, you’d have to wait 30 days before repurchasing - just like with stocks.
It’s not law yet, but it’s likely. Tax professionals say it’s only a matter of time. If you’re planning to harvest losses this year, do it before the end of 2025.
What to Do Now
Here’s your checklist for 2025:
- Collect all your transaction history from every exchange and wallet.
- Record the USD value of every crypto you received (staking, airdrops, payments).
- Track your cost basis - including gas fees and trading fees.
- Use tax software to calculate gains and losses.
- File Form 8949 and Schedule D with your 1040.
- Answer "Yes" to the crypto question on the first page of your tax return.
- Keep records for at least 3 years.
You don’t need to be an accountant. But you do need to be organized. The IRS isn’t asking for permission. They’re watching. And they already know more than you think.
Do I owe taxes if I didn’t sell my crypto?
No, you don’t owe capital gains tax if you just bought crypto and held it. But if you earned crypto through staking, mining, or as payment, you owe income tax on its value when you received it. Holding alone doesn’t trigger a tax event - only selling, trading, or spending does.
What if I lost money on crypto trades?
Losses offset gains. If you lost $5,000 on one trade and made $8,000 on another, you report a $3,000 net gain. You can deduct up to $3,000 in net losses against your ordinary income each year. Any extra losses carry forward to future years.
Do I have to report small crypto purchases, like buying coffee with Bitcoin?
Yes. Even a $5 coffee purchase with Bitcoin counts as a taxable event. You’re disposing of an asset. If the Bitcoin you spent was worth $3 when you bought it and $5 when you used it, you have a $2 capital gain. The IRS doesn’t care how small the amount - if there’s a gain, you report it.
Are crypto-to-crypto trades still taxable?
Yes. Trading Bitcoin for Ethereum is treated as two separate transactions: selling BTC for USD, then buying ETH with USD. You must calculate the gain or loss on the BTC sale. There’s no tax-free swap rule in the U.S. - unlike some other countries.
What if I use a non-U.S. exchange like Binance.com?
You still owe U.S. taxes. The IRS doesn’t care where your exchange is based. If you’re a U.S. taxpayer, you must report all global crypto transactions. Binance.com doesn’t report to the IRS, but that doesn’t make your gains tax-free. The IRS can still find your transactions through blockchain analysis.
Can I deduct crypto mining expenses?
Yes, if you’re mining as a business (not a hobby), you can deduct electricity, hardware depreciation, and other costs. But if you’re mining casually, you only report the value of the rewards as income. You can’t deduct expenses unless you qualify as a self-employed miner.
