While cryptocurrency may seem like an investment asset to most people, the IRS views it differently. When sold or exchanged through taxable accounts, crypto may be subject to income or capital gains taxes depending on its use and can generate tax liabilities depending on their cost basis and gain or loss when sold; additionally, interest or staking rewards may also need to be reported accurately as income for taxation purposes.

As cryptocurrency investments do not qualify for tax treatment similar to registered securities, investors should exercise extra care when reporting cryptocurrency gains and losses on their taxes. This article will address whether crypto currencies are taxable as investments as well as which transactions trigger taxation as well as strategies for mitigating tax liabilities.

Are Cryptocurrencies Taxable Just like property sales, when selling cryptocurrency you will typically owe capital gains taxes. Your tax rate depends on how long you held onto the cryptocurrency for as well as your federal tax bracket; long-term capital gains taxed at either 0%, 15% or 20% depending on income and filing status are typically taxed less heavily than short-term gains.

Cryptocurrency investments that are sold or exchanged for cash or another financial instrument will incur capital gains taxes if held in a taxable account. Your tax rate will depend on the difference between your sale price and cost basis – your original purchase price of cryptocurrency. Your cost basis can be established by recording when and how you purchased it, along with its fair market value at time of sale or exchange.

Losses from cryptocurrency transactions aren’t deductible like other property sales are, though you may be eligible to deduct your loss in case it was stolen or lost through natural disaster or theft. Under the new Tax Cuts and Jobs Act however, losses incurred prior to 2017 won’t qualify as deductions.

As it can be cumbersome to manually gather all your crypto transaction data from wallets and exchanges, using crypto-specific tax software that connects directly with exchanges, compiles data, and generates IRS Form 8949 will make the process far less time consuming and tedious. With such software at your disposal, reporting gains and losses quickly and accurately becomes much simpler while helping avoid common mistakes such as forgetting to include correct amount sales in taxable income or failing to take advantage of deductions available to you is much simpler.