How Is Cryptocurrency Taxed?

The IRS treats cryptocurrency as property, not currency, which means the same rules that apply to stocks also apply to Bitcoin, Ethereum, and other digital assets.

When you sell, trade, or spend crypto, you calculate whether you made a gain or a loss compared to what you originally paid — your cost basis — and that difference is what gets taxed.

If you held the crypto for more than a year before selling, any gain is taxed at the lower long-term capital gains rate; hold it for less than a year and the gain gets taxed as ordinary income, which is usually a higher rate.

Most people don't realize that simply using crypto to buy something is a taxable event, meaning you could owe tax even if you never converted to cash.

Understanding what counts as a taxable event is the first step to staying on the right side of the IRS.