Capital Gains Taxes for Crypto and Stocks: How Do They Work?

Capital gains is a term used to describe when an investment or asset increases in value from the original purchase price. The taxes associated with that gain – be it on cryptocurrency, stocks or real estate – is what we’ll discuss within. Typically, it is a good problem to have – your investment has paid off – but understanding how much you owe to the government and the information you will need to disclose is critical. 

As an investor, you’re required to pay taxes on profits on not just traditional assets, such as stocks and bonds, but also on profits from sales of alternative assets, like cryptocurrencies. While we can’t give tax advice – nor should you view the content within as such – we seek to provide a broad outline on how you can view certain tax circumstances. 

Cryptocurrency is little more than a decade old, and so its tax treatment may be new for many investors. In fact, according to a recent study, more than half (55%) of people who currently own Bitcoin only began investing in the most famous cryptocurrency in 2021. 

Because cryptos have more uses than traditional assets, we’ve detailed what you need to know about capital gains taxes (including similarities to stocks and other assets), what constitutes a taxable event, and how you may minimize your tax exposure.

What Are Capital Gains and Losses?

Almost everything you own, whether for personal or investment purposes, is considered a capital asset. Capital assets can include your home, car, furniture, and investments, such as stocks, bonds, or cryptocurrencies. 

If you sell an asset for more than you paid, it’s considered a capital gain. Conversely, if you sell something for less than you paid, it’s a capital loss. 

While the value of your assets may rise and fall every day, you only realize a capital gain or loss when you sell the asset. 

Though many investment services provide documentation surrounding your investments, it is ultimately your responsibility (and/ your tax preparer’s) to report these transactions to the IRS and calculate how much you may owe, if anything.

To determine your capital gain or loss, you can use the following formula:

Fair Market Value - Cost Basis = Capital Gain/Loss

Fair Market Value: How much your asset is worth in the current market; the sale price

Cost Basis: How much you paid to acquire the asset, including any fees

How much will you be required to pay? That depends on three important factors, according to the IRS:

  1. Your filing status (single, married filing jointly, married filing separately, or head of household)

  2. Your gross income for that tax year

  3. The length of time you held the investment or asset before you sold it (which determines if you’ll pay short or long-term capital gains)

Short-Term Capital Gains Tax on Crypto (and other assets)

Profits from an asset held less than a year are considered short-term capital gains, which are taxed like ordinary income.

The amount of taxes you pay is based on your maximum tax rate, which can be up to 37% for the 2022 tax year, according to the IRS. The IRS routinely updates brackets, so please consult the IRS for exact ranges. 

Source:, for informational purposes only.

Long-Term Capital Gains Tax on Crypto (and other assets)

Long-term capital gains apply to assets held for longer than one year. This tax treatment typically offers more favorable rates at 0%, 15%, or 20%, depending on your income level and filing status. 

Source:, for informational purposes only. Tables are provided as approximations and exact brackets are subject to change.

How Capital Gains Taxes Apply to Cryptocurrency 

In 2014, the IRS issued a notice explaining that virtual currency is treated as property for Federal income tax purposes. So, the same tax principles that apply to stocks, real estate, and other property transactions (with exceptions) also apply to virtual currencies.

To reiterate, when you sell or trade any cryptocurrency, you are legally obligated to report any profits to the IRS.

As with stocks, each cryptocurrency “trade” is technically two transactions: a “buy,” followed by a “sell.” Each time you trade (for instance, Bitcoin for Ethereum) or exchange crypto back to U.S. dollars, those transactions — no matter the size — technically involve the sale of a capital asset.

Trading cryptocurrencies is, therefore, considered a taxable event, whether traded directly, one-to-one on a decentralized exchange (DEX), such as Uniswap, or on a centralized exchange, like Coinbase or Gemini.

But, there are other reasons you may need to pay taxes on cryptocurrencies. Here is a sample list of taxable and non-taxable events:

Taxable Events for Cryptocurrencies

  1. Selling cryptocurrency for fiat currency (such as dollars or euros)

  2. Sending cryptocurrency as a gift, if valued at more than $15,000 (in which case you’ll need to file a gift tax return)

  3. Any purchase of goods or services with cryptocurrency; this includes small transactions, such as buying a coffee using your crypto wallet

  4. Trading or swapping one cryptocurrency for another crypto; this includes purchasing NFTs using cryptocurrency

Non-Taxable Events for Cryptocurrencies

  1. Buying cryptocurrency with fiat money

  2. Sending cryptocurrency as a gift, if valued at less than $15,000

  3. Holding crypto in your portfolio, even if the value increases 

  4. Transferring cryptocurrency between wallets you own and control

  5. Donating cryptocurrency to a tax-exempt non-profit or charity (if you give crypto directly to a 501(c)(3) charitable organization, you may be able to claim a charitable deduction)

Complexities can also arise when an investor is awarded coins via airdrops or tokens from a “forked” project, crypto yield farming, or staking. Please see the embedded links for additional information on those concepts. 

The IRS released a list of frequently asked questions that may help you determine if and when you are required to pay taxes on crypto assets. If you’re unsure how to determine your tax liability, then it can be worthwhile to speak to an experienced tax professional who can review your specific circumstances. 

How to Reduce Your Capital Gains Taxes 

There are several strategies that may help you decrease the amount you owe in capital gains taxes. Here are several tips to consider:

Hold Investments for Longer Than a Year

An effective way to reduce your capital gains taxes is to hold your investments for longer than a year. Taxes on long-term gains may offer a better alternative to short-term gains, which are taxed at your highest income tax bracket.

For example, if you’re a single tax filer with a $200,000 income, then your short-term investment gains would be taxed at 32%. However, if you hold those investments for more than one year before you sell, then those same investments would only be taxed at 15%*.

Consider a Self-Directed Retirement Account

A self-directed individual retirement account (IRA), also called a Crypto or Bitcoin IRA, allows you to invest in alternative asset classes, like real estate, precious metals, and cryptocurrency, which are typically excluded from conventional IRAs.

These retirement accounts often present many tax advantages that may not otherwise be accessible for these assets. Similar to a traditional IRA, a traditional Crypto IRA offers immediate tax benefits. Crypto contributions are tax-deductible, and you defer paying taxes until you access the funds when you retire. 

With a Roth Crypto IRA, you’ll pay taxes now, but you’ll receive greater benefits down the road. You won’t be responsible for paying the capital gains tax on any increases in value when you access the funds in retirement. 

However, these accounts are not without risk. Just like other retirement accounts, you can’t access the funds until you reach retirement age, or you could incur penalties.

The U.S. Commodities and Futures Trading Commission (CFTC) offers investors warnings about the potential disadvantages of these accounts.

Deduct Capital Losses

Even the best investors can incur losses on investments. While this isn’t ideal, the good news is that these losses can help reduce the taxes owed. 

One possible strategy to minimize taxes is known as tax-loss harvesting. With this strategy, you would sell a capital asset at a loss to offset other capital gains tax liabilities. This provides an opportunity to reduce tax-eligible gains associated with profitable investments.

The IRS allows deductions of up to $3,000 in capital losses per year from ordinary income, depending on your filing status and circumstances. 

Borrow Against Your Capital Assets

If you have a considerable amount of crypto assets in your portfolio, then perhaps you’re reluctant to sell because doing so may incur a significant taxable event. Instead, it’s possible to use your cryptocurrency as collateral for a loan. This would give you access to the money for personal use without selling your cryptocurrency assets and owing taxes on those gains. 

Be advised that there are circumstances where taking out a crypto loan may require paying taxes. You may also be subject to loan fees, interest and other expenses and risks, for example, if the value of your holdings decline. If you’re considering this route, consult with a tax or financial professional to fully understand your loan terms.  

Be Prepared for Tax Time

While tracking all your capital gains and losses can seem complex, the best way to avoid a headache at tax time is to keep excellent records of your investments and transactions (buys, sells, and trades). 

And when in doubt or if you have questions about your tax obligations, it’s best to consult with a certified tax professional.

* Hypothetical, not tax advice. Please consult with a tax professional for your specific circumstances

Domain Money Advisors, LLC is providing this information for informational purposes only. While Domain Money Advisors, LLC believes that the information contained herein is reliable and derived from reliable sources, it makes no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information. Domain Money Advisors, LLC, and its parent company, Domain Money, Inc., expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed. The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities or cryptocurrency, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service.  Investing comes with inherent risks and you should always invest within your means and risk tolerance.  Past performance is not an indication of future returns and you should always consult a financial advisor prior to making investment decisions. Please see important disclosures at