Cryptocurrency Capital Gains Tax: What You Need to Know

Understanding Short-Term and Long-Term Capital Gains

When you sell cryptocurrency, the profits you make are subject to capital gains tax. The tax rate depends on how long you held the cryptocurrency before selling it. Short-term capital gains, from purchases held for less than a year, are taxed at the same rate as your ordinary income, ranging from 10% to 37%. Long-term capital gains, from purchases held for more than a year, are taxed at lower rates, ranging from 0% to 20%. The exact rate depends on your income and filing status.

Cryptocurrency as a Collectible

Non-fungible tokens (NFTs), a type of cryptocurrency, are often treated as collectibles for tax purposes. Collectibles are taxed at a higher rate than other investments, at 28%. This means that if you sell an NFT that you held for less than a year, you will pay a 28% capital gains tax on your profits.

Taxable Crypto Events

Capital gains tax events involving cryptocurrencies include:

• Selling cryptocurrency for cash or other cryptocurrencies
• Using cryptocurrency to purchase goods and services
• Exchanging one cryptocurrency for another

It's important to track all your cryptocurrency transactions to accurately calculate your capital gains and losses.

Tax Implications for Foreign Currency

If you use cryptocurrency to purchase goods or services in a foreign currency, you will need to convert the foreign currency to US dollars to calculate your capital gains or losses. The exchange rate at the time of the transaction will determine the amount of your gain or loss.