Crypto tax 101: everything you need to know to stay compliant in 2025
Crypto tax refers to taxes paid on various types of cryptocurrency transactions. Depending on the scenario, taxable crypto activities are treated as capital gains or regular income. This article takes you through what you need to know.
Summary
Crypto tax is the tax you pay on transactions involving cryptocurrency. Whether you sell, trade, or earn crypto, depending on how the crypto was acquired and used, these activities can trigger capital gains or income tax obligations.
The IRS treats cryptocurrency as property, meaning activities like selling, swapping, or making purchases with crypto are taxable events. Income earned through staking, mining, hard forks, or airdrops is subject to standard income tax rules.
Starting in 2025, taxpayers without a "safe harbor plan" must use FIFO accounting for cost basis calculations, and transactions must reference the earliest purchase from the same wallet.
Unbiased can connect you with a certified financial advisor to navigate your crypto tax obligations.
What is crypto tax?
The government treats cryptocurrency as property, meaning activities like selling, trading, or earning crypto as income can trigger tax obligations.
You may owe either capital gains or income tax depending on how the crypto was sold or acquired.
While it may seem overwhelming for those new to the subject, understanding your crypto tax obligations is important for staying compliant with tax laws and avoiding penalties.
How does crypto tax work?
The IRS considers digital assets property, subjecting them to capital gains tax rules in most cases.
Standard capital gains taxes apply to anyone selling, swapping, or making purchases with cryptocurrency. A taxable event occurs whenever a user swaps one crypto for another, buys goods or services directly with crypto or sells cryptocurrency for fiat currency, i.e., the US dollar.
Here’s a more detailed breakdown of the types of cryptocurrency transactions subject to capital gains taxes:
Selling crypto: If you buy a token at one price and sell it later for a higher price, your profits count as capital gains.
Swapping crypto: Exchanging one cryptocurrency for another, such as trading Bitcoin directly for Ethereum, is considered a taxable event. Any gains or losses are calculated based on the difference between the value of the crypto you gave up (cost basis) and the value of the crypto you received at the time of the swap.
Purchasing with crypto: When you buy goods or services using cryptocurrency as payment, this gets treated as a sale of crypto. The price of the coin when you bought something with it is the price you sold it at.
However, cryptocurrency can also be taxed as regular income in some cases. These include:
Crypto staking: When someone “stakes” cryptocurrency, they lock up funds for a period of time in exchange for rewards. These rewards are subject to standard income tax rules.
Income received in crypto: If someone pays you for a product or service using cryptocurrency, this is considered regular income and is subject to income tax rules. Capital gains taxes will also apply if the coins are later sold for fiat currency.
Mining crypto: If you earn crypto through participating in the mining process, using computer power to solve complex mathematical problems and validate transactions on a blockchain network, of a proof-of-work coin like Bitcoin, then any coins you mine become taxable income.
Getting crypto from an airdrop or hard fork: Receiving crypto from an airdrop (a free giveaway) or as a result of a hard fork (when a blockchain splits in two, resulting in the creation of new coins) counts as regular income.
Most other crypto-related activities are not taxable, such as giving or receiving crypto gifts, donating to a charity, buying and holding crypto, or making transfers between your personal wallets.
How much tax will I pay on crypto gains?
As with other income or capital gains, the amount of tax you owe depends on various factors.
For income, the primary factor is your tax bracket, which is based on your total annual income.
For capital gains, your tax liability depends on your tax bracket and cost basis. A cost basis is the original price you paid for an asset.
For example, if you buy 0.1 BTC for $9,000 and sell it later for $10,000, your cost basis is $9,000. The difference between this price and $10,000, the price you sold, is the amount you owe taxes on. In this example, you would owe capital gains taxes on the $1,000 profit. The amount owed varies depending on how long the asset was held for and your taxable income.
Here’s a breakdown of short-term and long-term capital gains tax rates according to federal income tax brackets:
| Income bracket (USD) | Tax type | Capital gains tax rate |
|---|---|---|
| Income bracket (USD) | Tax type | Capital gains tax rate |
| $0 - $44,625 | Short-term gains | 10% - 37% |
| $44,626 - $492,300 | Short-term gains | 10% - 37% |
| $492,301 and above | Short-term gains | 10% - 37% |
| $0 - $44,625 | Long-term gains | 0% |
| $44,626 - $492,300 | Long-term gains | 15% |
| $492,301 and above | Long-term gains | 20% |
Note that these income brackets are for single tax filers; married couples filing jointly are generally subject to double the income for the same bracket.
Long-term capital gains apply to assets held for one year or more, while short-term capital gains apply to those held for less than a year.
Different states also have their own capital gains state taxes. For example, California has unique, variable capital gains tax brackets, while Utah has a flat rate of about 5%.
Are crypto losses tax deductible?
In some cases, crypto losses can be tax deductible, but it depends on the scenario.
If someone has capital gains from selling stocks or other property but capital losses from crypto in the same year, those losses can be used to offset the gains.
In addition, if your losses exceed your gains, you can deduct up to $3,000 of the excess loss against your ordinary income each year, with any remaining losses carried forward to future years.
Crypto lost to scams or exchange shutdowns is typically not deductible either, although exceptions may apply.
For further details on capital gains and losses, see the following page on the official IRS website.
What are the new crypto tax rules for 2025?
Crypto taxes will undergo some major changes in 2025. The changes involve how crypto users calculate their cost basis and what accounting methods can be used.
Previously, taxpayers could aggregate their cost basis across all their wallets and exchange accounts. This meant that if someone sold any crypto, they could use the cost basis of any previous purchase. They also had a variety of accounting methods to choose from, such as last in, first out (LIFO), first in, first out (FIFO) or highest in, first out (HIFO).
Starting in 2025, taxpayers who didn’t create a “safe harbor plan” before Jan. 1, 2025, must use the FIFO accounting method. A safe harbor plan involves taking a snapshot of your crypto balances and the cost basis for each unit.
In addition, the cost basis for each transaction must come from the same wallet. In other words, every time someone sells, trades, or uses cryptocurrency to make a purchase, the cost basis for that sale must be calculated using the earliest purchase made from that same account.
For more on the 2025 crypto tax changes, see this IRS news release.
Get expert financial advice
Even though crypto taxes can seem complicated at first glance, in most cases, they work much like regular income or capital gains taxes.
Unbiased can connect you with an experienced financial advisor who can provide expert financial advice tailored to your goals.
Content Writer
Brian Nibley is a copywriter and journalist who has been writing about cryptocurrency and finance-related topics since 2017. His work has appeared in publications such as MSN Money, Business Insider, Cointelegraph, BitPay, and Finance Magnates. He is also an avid social media content creator on LinkedIn, X, Instagram, and YouTube