![]() ![]() If you held it for a year or less, you’ll pay the higher, ordinary tax rates. When you sell crypto and have realized a gain on your investment, you may owe either normal income taxes or capital gains taxes, depending on how long you held the crypto. Whether you sell or earn cryptocurrency will determine how much you’ll owe in taxes. ![]() For 2023, ordinary tax rates could be as high as 37%. However, if you sell your cryptocurrency at a gain but have held it for only a year or less, you’ll be taxed at your ordinary income tax rate, which is determined by your income and filing status. Capital gains tax rates apply if you sell your cryptocurrency after holding it beyond one year and get more than you paid for it. Here’s the good thing about crypto and taxes: If you’re required to pay capital gain taxes, the tax rate will be smaller than your ordinary income tax rate.įor the 2023 tax year, the capital gains tax rates are 0%, 15%, and 20%. On Cash App Taxes' Website Capital Gains Tax Rates vs. If you received cryptocurrency as a form of wages, your employer will report it at fair market value on your W-2, “Wage and Tax Statement.” You’ll need to report the amount on your income tax return and pay ordinary income taxes on the amount received. You’d have the option of claiming a portion of the loss each year until you’ve exhausted the total amount. Though you’re not required to pay any taxes on capital losses, you could use the loss to offset other income up to $3,000 ($1,500 if married filing separately), to reduce your taxable income. If you decide to sell it, you’ll owe capital gains taxes on your gain of $180.īut if you bought $100 worth of bitcoin and it decreased in value over three years, to $20, you’d be selling at a capital loss. Let’s say you bought $20 worth of bitcoin and have held it for three years, as your investment rose in value to $200. If you hold it for one year or less and realize a gain, you’ll pay ordinary income taxes, which are taxed at higher rates than capital gains. ![]() If you hold your cryptocurrency for more than one year and sell it for more than you paid for it, you will incur capital gains taxes. “I assume decided this because most people hold crypto as an investment, and we tax the appreciation on capital assets held as an investment,” he says.Ĭapital assets are taxed whenever they are sold at a gain. ![]() The IRS may have chosen to tax crypto as a capital asset because of the way most people treat it, says Jeff Hoopes, an associate professor of accounting at the University of North Carolina and research director of the UNC Tax Center. This decision has had major ramifications for people who own crypto, as it has opened them up to more complicated taxes. How Is Cryptocurrency Taxed?Ĭrypto taxes are generally based on a 2014 IRS ruling that determined cryptocurrency should be treated as a capital asset, like stocks or bonds, rather than as currency, like dollars or euros. Today there are thousands of others in circulation, including bitcoin cash, litecoin, ripple and dogecoin. Think of blockchain ledgers as a constantly updated checkbook that tracks every transaction ever made in a given cryptocurrency.īitcoin was the first cryptocurrency, launched in 2009. Instead, cryptocurrency relies on encrypted, distributed ledgers-so-called blockchain technology-to record and verify all transactions. It’s not a currency with any physical tokens, like dollar bills, and it lacks any centralized governmental oversight. A cryptocurrency is a decentralized, digital store of value and medium of exchange. ![]()
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