Read Сryptocurrency News

Crypto Taxes: What to Report, the Deductions, Rules & Rates

Crypto Taxes: What to Report, the Deductions, Rules & Rates
Copyright on text and image:

Disclaimer: This post is provided for informational purposes only. It is not intended to substitute for tax, investment, financial, nor legal advice. For financial, tax, or legal advice please consult your own professional.

The IRS has a complicated tax code in the United States. Understandably, it can be easy to ignore the black box of taxes, however understanding these rules can help you minimize the amount you pay in taxes and save you a huge amount of money.

Capital Losses from Crypto Trading

Since the IRS has issued guidance that cryptocurrency is property, when you dispose of a crypto asset (e.g. sell, trade, use for a purchase, etc.), it triggers a capital event. If the proceeds from the disposal are lower than the cost basis of the asset, then you have a capital loss.

For example, you can claim capital losses1 to offset your capital gains (even in a different asset class) to reduce the amount of capital gains taxes you owe. You can also roll over losses to future years without expiration if you do not have sufficient capital gains to offset in the given year. This is why it is incredibly valuable to file your cryptocurrency taxes, even when you have losses in a particular year.

Guidelines for Filing

In the US, the IRS has not specified guidance for how exactly to calculate capital gains on cryptocurrency transactions. To be consistent with IRS guidance for other assets, such as stocks, bonds, and mutual funds, you should apply either the first-in, first-out (FIFO) method or the specific identification method.

Under FIFO, the first coin that you purchase (chronologically) is the first coin counted for a sale. Under specific identification, you select which specific coin is being sold in a transaction. This can be ad-hoc or according to a pattern (e.g., highest-in-first-out [HIFO], last-in-first-out [LIFO], etc.).

FIFO is the most straightforward and conservative method to calculate capital gains, and is what most tax professionals would recommend you apply. Applying the specific identification method adds complexity and requires alerting your broker/exchange which specific coins you are trading at the time of transaction, as well as receiving written confirmation from the broker/exchange that those were the coins transacted.

Capital Gains Rates

Capital gains may be taxed at two different rates depending on the length of time that the assets have been held. If you have held coins for one year or less, any gains are considered short-term capital gains. In this scenario, the gains are simply added to your income for tax purposes and taxed at your ordinary income tax rate (2018 rates, 2019 rates). This is the higher tax treatment scenario.

If you have held the coins for more than one year, any gains are considered long-term capital gains. In this scenario, the gains are taxed between 0 – 20% depending on your ordinary income tax rate (you can determine yours here). This is the lower tax treatment scenario.

Margin Loans Using Your Cryptocurrency

Services like BlockFi allow you to collateralize your cryptocurrency (e.g. Bitcoin, Ether, or Litecoin) in exchange for a USD loan. Unlike selling, trading, or disposing your cryptocurrency, collateralizing crypto for a fiat loan is not a taxable event. This means that you can utilize a margin loan like this if you do not want to liquidate your cryptocurrency but still want liquidity for other expenses, such as funding a business.

Crypto Tax Filing Software

Calculating cryptocurrency taxes can get confusing. Proper record keeping involves trade-by-trade records that include everything from timestamp to USD cost basis of the digital assets you’re trading. Services like CoinTracker can help you calculate your capital gains and prepare your crypto taxes. CoinTracker securely syncs your transaction history from popular exchanges & wallets across 2,500 different cryptocurrencies to provide your completed IRS Form 8949 (or capital gains report for Australia, Canada, or the United Kingdom).

Additional Resources
  • IRS Publication 550: Investment Income and Expenses
  • Block Fi: Cryptocurrency Tax 101
  • Updated Tax Code

  • Acknowledgements

    Thanks you to Clinton Donnelly, Enrolled Agent (Donnelly Tax Law), Shehan Chandrasekera, CPA (JAG CPAs) for consulting on this post.

  • [/i]
  • [/i]
  • [/i]

  • Crypto Taxes: What to Report, the Deductions, Rules & Rates

    BlockFi lets you use your Bitcoin, Ether, and Litecoin to do things like buy a home, pay down debt, or even fund your business without having to sell your crypto. Start your application now and get funded in as few as 90 minutes.
    APPLY NOW[/i]

    How a Bitcoin loan works

    Crypto Taxes: What to Report, the Deductions, Rules & Rates

    Crypto Taxes: What to Report, the Deductions, Rules & Rates

    Crypto Taxes: What to Report, the Deductions, Rules & Rates

    LEARN MORE[/i]

    Client Testimonials


    As an investor with significant crypto holdings, BlockFi gave me a valuable tool to get capital, at a fair price, without liquidating my crypto holdings. Aside from offering the best price, their approach to secure storage and thoughtful loan to value ratios gave me confidence that they were the right partner to work with for my cryptocurrency needs.

    As a long term crypto holder, it’s important to me to be able to leverage my existing capital without selling. Earning monthly interest all in one place has simplified how I use my cryptoassets.


    BlockFi makes it fun to be a hodler again.


    We have felt strongly that this market needs access to debt beyond fragmented, short term margin trading options in order to reduce volatility, facilitate scale and put the financial infrastructure for this ecosystem on par with other asset classes. We're happy to have BlockFi as part of the Consensys family and see tremendous growth opportunities for their platform.

    BlockFi was my first choice when looking to use crypto as collateral for a fiat loan. BlockFi's friendly and professional staff helped make for a very smooth process from start to finish.

    It feels great to have my crypto be recognized as a real asset, which can used as collateral. I'm going to be able to immediately pay off a credit card I've been carrying a balance on.


    Learn more about earning crypto interest and crypto-backed loans with BlockFi

    Earn Interest on Crypto
    How Does a BlockFi Interest Account Work? How to Earn Compound Interest on Your Crypto Earn Interest or Get a Loan with Coinbase and BlockFi
    Earn Interest by Lending Out Your Bitcoin
    Crypto Loans
    How Does a Crypto Backed Loan Work? What Happens if I Do an Early Loan Repayment? Will a Crypto Loan Affect my Credit Score? How Does a Bitcoin Loan Work? How to Payoff or Refinance Your Crypto Loan Reasons to Get an Ether Loan How does a Litecoin Loan Work?
    Use Cases
    Home Loans: Bitcoin Crypto Loans for Real Estate Auto Loan - Buying a Car Traveling the World with Crypto Diversifying Investment Portfolio with a Loan Paying Down Credit Card Debt with Crypto
    Business Loans
    Collateralized Crypto Backed Business Loans Fund Business Expansion with Crypto How to Fund Payroll with Crypto Fund a Crypto Mining Business with Crypto
    Crypto Taxes
    3 Tips to Minimize your Crypto Tax Liability Top 5 Best Crypto Tax Software Companies Crypto Taxes: What to Report, the Deductions, Rules & Rates Crypto Taxable Events Tax Implications of BlockFi’s Crypto Interest Account
    Learn More
    BlockFi Trading: How to Use Trading 5 Simple Ways to Earn Bitcoin 5 Best Things to Ask Crypto Lenders The Best Ways to Buy and Spend Your Bitcoins How To Get Free Bitcoins With These 5 Methods How to Whitelist Crypto Wallet Addresses Gemini Dollar (GUSD): What is it and how to use it?

    Apply in less than two minutes.

    Fastest Bitcoin and Ether backed loans in the industry.

    Earn UP TO 8.6% API on Your Crypto!
    BlockFi Wealth Management Offers Leading Interest Rates On Crypto Deposits, As Well As Fast And Easy Loans!

    Add comment


    Latest Video News