Cryptocurrency tax rates can be capital gains or income tax rates. There are short-term & long-term crypto tax rates depending on how long you hold the asset.
* This post is intended as a summary of applicable tax rates does not constitute tax advice. The laws discussed in this post are potentially subject to change—including with retroactive effect. You are strongly urged to consult your tax advisors to determine any federal, state, local or foreign tax consequences in light of your own particular circumstances.
This blog post summarizes the applicable tax rates for common transactions involving cryptocurrency, such as Bitcoin or Ethereum. Certain transactions (such as the exchange or sale of crypto held as a capital asset) are generally subject to capital gains tax rates, while other transactions (such as receiving crypto as wages) are subject to ordinary income tax rates.
Transactions involving crypto are subject to capital gains tax if the tokens or coins are treated as a capital asset in the hands of the taxpayer. Any gain from a sale or exchange of capital assets is taxed at capital gains rates. For an individual that sells, for example, Bitcoin that she held as an investment, gain on that sale will generally be subject to capital gains rates.
Not all capital gains are taxed at the same rate. The tax rate an individual pays for capital gains on crypto is based on two independent factors: (1) how long the asset has been held by the individual, and (2) that individual’s annual taxable income.
The short-term capital gains rate applies if, at the time of the sale, you have owned the crypto for a year or less. The long-term capital gains rate applies if you have owned the crypto for over a year. The long-term capital gains rate is usually lower than the short-term capital gains rate. Therefore, holding onto crypto assets for more than a year can result in paying less in taxes.
The applicable short-term and long-term capital gains rate depends on your filing status and your other income. For 2021, the applicable capital gains tax rates are below. This does not include additional taxes that may also apply depending on your income, such as the 3.8 percent net investment income tax.
The following tables show the tax rates for capital gains during 2021:
Certain other transactions involving crypto are taxed at ordinary income rates. If you receive tokens (for example, Bitcoin) as compensation, this is subject to ordinary income tax rates at the time you receive the tokens.
The following tables show the tax rates for ordinary income during 2021: