Taxes & Regulation

Are Crypto Gains Taxable? Capital Gains, Income, and the Gray Areas

How crypto capital gains are calculated, the critical difference between short-term and long-term rates, cost basis methods, and tax-loss harvesting strategies.

7 min read
#capital-gains#taxes#cost-basis#tax-loss-harvesting

Yes — in the US and most countries, crypto gains are taxable. But the details matter: how long you held, how you acquired the asset, and what method you use to calculate your cost basis all affect how much you owe. This guide breaks down the mechanics so you can plan accordingly (and legally minimize your tax bill).

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This is educational content, not tax advice. Tax laws differ by jurisdiction and change regularly. Consult a qualified tax professional for your specific situation.

Capital Gains: The Basics

A capital gain occurs when you sell or dispose of an asset for more than you paid for it. In crypto, this includes selling for fiat, trading for another crypto, or spending crypto on goods and services.

Capital gains calculation
Capital Gain = Sale Price - Cost Basis

Example:
  Bought 1 ETH at $2,500 (your cost basis)
  Sold 1 ETH at $3,500

  Capital gain: $3,500 - $2,500 = $1,000

If you sold at $2,000:
  Capital loss: $2,000 - $2,500 = -$500
  (Losses can offset gains — more on this below)

Short-Term vs Long-Term Gains

The holding period dramatically affects your tax rate:

US capital gains tax rates (2026)
Short-Term (held ≤ 1 year):
  Taxed as ordinary income
  Rates: 10%, 12%, 22%, 24%, 32%, 35%, or 37%
  (depends on your total taxable income)

Long-Term (held > 1 year):
  Preferential tax rates
  0%  — income up to ~$47K (single) / ~$94K (married)
  15% — income ~$47K–$518K (single) / ~$94K–$583K (married)
  20% — income above those thresholds

The difference is significant:
  $10,000 gain at 37% (short-term): $3,700 tax
  $10,000 gain at 15% (long-term):  $1,500 tax
  Savings from holding 1 extra day: $2,200
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If you're sitting on a gain and your holding period is close to one year, it may be worth waiting. The long-term rate is nearly always lower — often dramatically so.

Cost Basis Methods

If you bought the same cryptocurrency at different times and prices, which purchase's cost basis do you use when you sell? The IRS allows several methods:

  • FIFO (First In, First Out) — the default. Assumes you sell the oldest coins first. Often results in higher gains (because older coins were likely cheaper).
  • LIFO (Last In, First Out) — sells the newest coins first. May result in lower gains if prices have been dropping.
  • Specific Identification — you choose exactly which coins you're selling. Most tax-efficient but requires detailed record-keeping.
  • HIFO (Highest In, First Out) — sells the highest-cost coins first, minimizing gain. Popular with crypto tax software.

Most crypto tax software (Koinly, CoinTracker, etc.) supports all these methods and will show you which one minimizes your tax burden. See our tax tracking guide for tool recommendations.

Tax-Loss Harvesting

If some of your crypto is at a loss, you can sell it to realize the loss and use it to offset gains — this is called tax-loss harvesting.

Tax-loss harvesting example
Realized gain from selling ETH:    +$5,000
Realized loss from selling SOL:   -$3,000
                                  ────────
Net taxable gain:                  $2,000

Without harvesting: pay tax on $5,000
With harvesting: pay tax on $2,000

If losses exceed gains: deduct up to $3,000/year
against ordinary income. Remaining losses carry
forward to future years.
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Unlike stocks, crypto does not have a "wash sale rule" under current US law (as of 2026). This means you can sell crypto at a loss and immediately rebuy the same asset. This may change — proposed legislation has attempted to extend wash sale rules to crypto. Check with a tax professional for the latest.

Crypto-Specific Tax Scenarios

  • Earning crypto (RentAHuman income) — reported as ordinary income at fair market value when received. Your cost basis for future gains is that value. (Detailed in our crypto tax overview.)
  • Staking rewards — currently treated as income when received (though this is being challenged in court). Cost basis = value at receipt.
  • Airdrops — income at fair market value when you gain control of the tokens.
  • Gas fees — the IRS hasn't issued clear guidance. Most tax professionals add gas fees to your cost basis (reducing your gain) or treat them as a transaction expense.
  • DeFi transactions — providing liquidity, wrapping tokens, and yield farming can all create taxable events. This area is complex and evolving.

Key Takeaways

The goal isn't to avoid taxes — it's to not pay more than you legally owe. Holding longer than a year, harvesting losses, and keeping good records are all completely legal ways to reduce your bill.
  • Track every transaction from day one — retroactive tracking is painful.
  • Use crypto tax software to calculate your optimal cost basis method.
  • Hold for more than a year when possible for long-term rates.
  • Harvest losses before year-end to offset gains.
  • Consult a crypto-savvy CPA if your situation is complex.

For tools that make all of this easier, see our crypto tax tracking guide. And for the big-picture overview, read do I owe taxes on crypto?

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