Bitcoin · Ethereum · Any coin · Federal + state tax · Short vs long-term · Quarterly payments · 2026
How Cryptocurrency Is Taxed in the US (2026)
The IRS treats cryptocurrency as property, not currency. This means every time you sell, trade, or spend crypto, it's a taxable event subject to capital gains tax — just like selling stocks. Even swapping one crypto for another (e.g., Bitcoin for Ethereum) is a taxable event.
Short-Term vs Long-Term Capital Gains
How long you held the crypto before selling determines your tax rate — this is the single biggest tax lever available to crypto investors:
- Short-term (held under 1 year) — taxed as ordinary income at your regular income tax rate (10%–37%). This is the expensive option.
- Long-term (held over 1 year) — taxed at preferential rates of 0%, 15%, or 20% depending on income. Significantly lower than short-term rates.
- Example: Selling $50,000 of Bitcoin profit short-term in the 32% bracket costs $16,000 in federal tax. Waiting to hold over 1 year drops that to $7,500 at the 15% long-term rate — a $8,500 saving just by waiting.
2026 Long-Term Capital Gains Tax Rates
- 0% — Single filers with taxable income under $47,025 · Married under $94,050
- 15% — Single $47,026–$518,900 · Married $94,051–$583,750
- 20% — Single over $518,900 · Married over $583,750
- +3.8% NIIT — Net Investment Income Tax applies if income exceeds $200,000 (single) or $250,000 (married)
Taxable Crypto Events (What Triggers a Tax Bill)
- Selling crypto for USD or any fiat currency
- Trading one crypto for another (BTC → ETH is taxable)
- Spending crypto to buy goods or services
- Receiving crypto as payment for work (taxed as ordinary income at receipt)
- Mining rewards (taxed as ordinary income at fair market value when received)
- Staking rewards (taxed as ordinary income when received per IRS guidance)
- Airdrops (taxed as ordinary income at fair market value when received)
What Is NOT a Taxable Crypto Event
- Buying crypto with USD (no tax, but establishes your cost basis)
- Transferring crypto between your own wallets
- Holding crypto — no tax until you sell
- Gifting crypto up to $18,000 per person per year (2026 gift tax exclusion)
- Donating crypto to a registered charity (may actually be deductible)
State Taxes on Crypto
Most US states tax crypto gains as ordinary income at the state level on top of federal taxes. California is the harshest at 13.3% — a California resident in the top bracket effectively pays 20% federal + 13.3% state = 33.3% on long-term gains. Nine states have no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
State Capital Gains Tax Rates — All 50 States
| State | Max Rate on Crypto Gains | Notes |
|---|
| California | 13.30% | Highest in US |
| New Jersey | 10.75% | |
| Oregon | 9.90% | |
| Minnesota | 9.85% | |
| New York | 8.82% | +NYC surcharge if applicable |
| Vermont | 8.75% | |
| Iowa | 5.90% | |
| Georgia | 5.75% | |
| Massachusetts | 5.00% | |
| Illinois | 4.95% | Flat rate |
| Colorado | 4.40% | |
| Pennsylvania | 3.07% | Flat rate |
| Texas | 0% | No state income tax |
| Florida | 0% | No state income tax |
| Nevada | 0% | No state income tax |
| Washington | 0% | No state income tax |
| Wyoming | 0% | No state income tax |
Frequently Asked Questions
Do I need to report crypto if I didn't cash out to USD?
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Yes. The IRS considers crypto-to-crypto trades as taxable events. If you traded Bitcoin for Ethereum, you owe capital gains tax on the Bitcoin you sold, even though you never received US dollars. The amount of gain is the fair market value of the Ethereum you received minus your cost basis in the Bitcoin you sold. Many investors don't realize this and face large unexpected tax bills.
What if I lost money on crypto — can I deduct it?
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Yes — crypto losses are deductible. Capital losses offset capital gains dollar-for-dollar. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income per year, with the remainder carrying forward to future years. This strategy — called tax-loss harvesting — is one of the most powerful tools crypto investors have. Unlike stocks, there is currently no wash-sale rule for crypto, meaning you can sell at a loss and immediately rebuy.
Does the IRS know about my crypto?
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Increasingly yes. Major US exchanges (Coinbase, Kraken, Gemini) are required to file Form 1099-B or 1099-DA with the IRS and send copies to users. The IRS also uses blockchain analytics tools to track large transactions. Since 2019, the IRS has included a crypto question on the front page of Form 1040. Non-reporting carries significant penalties — up to 75% of unpaid tax in fraud cases.
What is cost basis and how do I calculate it?
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Cost basis is the original price you paid for your crypto, including fees. If you bought 1 Bitcoin for $40,000 and paid $50 in fees, your cost basis is $40,050. When you sell, your capital gain is the sale price minus cost basis. The IRS allows several methods: FIFO (first in first out — default), HIFO (highest in first out — minimizes gains), and specific identification. Choosing HIFO when prices have risen can significantly reduce your tax bill.