If you’re thinking about investing in cryptocurrency, you may be wondering how much you’ll have to pay in capital gains tax if you make a profit. Here’s what you need to know.
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Cryptocurrency investors often ask “How much is capital gains tax on crypto?” Unfortunately, there is no easy answer to this question as it depends on numerous factors, including the country in which you reside, the type of crypto assets you hold and whether you are classed as a short-term or long-term investor.
In general, capital gains tax is charged on the profit you make when you sell (or dispose of) a capital asset, such as cryptocurrency. The amount of tax you pay will depend on your tax bracket and the length of time you held the crypto assets.
If you are based in the United States, the IRS treats cryptocurrency as property for tax purposes, which means that capital gains tax applies. The rate of tax you pay will depend on your income bracket and whether you are classed as a short-term or long-term investor.
Short-term capital gains are taxed at your marginal income tax rate, which could be as high as 37% for those in the top income bracket. Long-term capital gains are taxed at a lower rate of either 0%, 15% or 20%, depending on your income bracket.
In most cases, it is advisable to speak to a professional accountant or tax adviser to ensure that you are paying the correct amount of tax on your crypto profits.
What is Capital Gains Tax?
In the United States, individuals and corporations pay taxes on the “net capital gain.” This is defined as the difference between the sales price and the purchase price of an asset. If you bought a stock for $100 and sold it later for $200, your net capital gain would be $100.
The tax rate on capital gains depends on your income tax bracket. For example, if you are in the 25% tax bracket, your capital gains tax rate would be 25%.
Short-term capital gains (assets held for less than a year) are taxed at your ordinary income tax rate. Long-term capital gains (assets held for more than a year) are taxed at a lower rate: 0%, 15%, or 20%, depending on your tax bracket.
Cryptocurrency is treated as property for tax purposes. This means that any gains or losses from buying, selling, or trading cryptocurrency are subject to capital gains tax.
The IRS has not yet released official guidance on how to calculate capital gains taxes for cryptocurrency, but there are several methods that taxpayers can use to estimate their taxes owed.
One method is to use the fair market value of the cryptocurrency at the time of sale or trade. For example, if you bought 1 bitcoin for $10,000 and sold it later for $20,000, your net capital gain would be $10,000.
Another method is to use the cost basis of the cryptocurrency. This is the original purchase price of the asset plus any costs associated with acquiring it (such as brokerage fees). Using this method, your net capital gain would be $9,900 ($20,000 – $10,000 – $100).
whichever method results in a lower tax liability.
How is Capital Gains Tax Calculated on Crypto?
The amount of capital gains tax you owe on your crypto will depend on a few factors, including how long you held the crypto, what type of crypto it is, and what country you’re in.
In the United States, capital gains tax is calculated by taking the difference between your “cost basis” (the price you paid for the crypto) and your “sale price” (the price you sold it for), and then multiplying that number by your tax rate.
For example, let’s say you bought 1 Bitcoin for $10,000 in January of 2018, and then sold it for $20,000 in December of 2018. Your cost basis would be $10,000, and your sale price would be $20,000. The difference between those two numbers is $10,000. If you are in the 25% tax bracket, your capital gains tax would be $2,500 ($10,000 x 0.25).
However, if you held that Bitcoin for longer than a year before selling it, then you would be eligible for the long-term capital gains tax rate, which is currently 20%. In that case, your capital gains tax would be $2,000 ($10,000 x 0.20).
It’s important to note that capital gains tax is only owed on profits; if you sell crypto for less than you paid for it, then you don’t owe any capital gains tax.
When is Capital Gains Tax Paid on Crypto?
Cryptocurrency is taxed like any other investment in the United States. When you sell cryptocurrency for more than you paid for it, you have to pay capital gains tax. The amount of tax you owe depends on how long you held the cryptocurrency, your marginal tax rate, and whether you have any other capital gains or losses for the year.
If you hold cryptocurrency for less than a year before selling it, your capital gain or loss is short-term. Short-term gains are taxed at your marginal tax rate, which could be 10%, 12%, 22%, 24%, 32%, 35%, or 37%.
If you hold cryptocurrency for more than a year before selling it, your capital gain or loss is long-term. Long-term capital gains are taxed at lower rates than short-term gains: 0%, 15%, or 20%, depending on your marginal tax rate.
How to File Capital Gains Tax on Crypto?
Paying taxes on cryptocurrency isn’t as simple as just buying and selling Bitcoin or other digital assets. Instead, the IRS views crypto as property, which means you have to pay capital gains tax whenever you sell it for profit.
If you’ve made money from trading or investing in cryptocurrency, you’ll need to report it come tax time. Here’s what you need to know about how to file capital gains tax on crypto.
Cryptocurrency is taxed as a capital asset
For federal taxes, cryptocurrency is taxed as a capital asset. That means if you buy crypto and sell it at a higher price, you’ll need to pay capital gains tax on your profits.
The same goes for losses. If you sell your crypto for less than what you paid for it, you can deduct your losses from your other capital gains. Or, if your losses are more than your gains, you can deduct them from your income (up to $3,000 per year).
Cryptocurrency transactions are taxable events
Every time you buy or sell cryptocurrency, that’s considered a taxable event. So if you trade Bitcoin for Ethereum, that’s two taxable events (selling Bitcoin and buying Ethereum). And if you trade Ethereum for USDT (tether), that’s another taxable event.
You’ll need to keep track of all of your cryptocurrency transactions so that you can calculate your capital gains (or losses) come tax time. Exchanges like Coinbase have started doing this for their customers, but if you’ve traded on multiple exchanges or stored your crypto in a personal wallet, it’ll be up to you to keep track of everything.
How much capital gains tax do I have to pay?
Capital gains tax rates depend on your income bracket. Short-term capital gains (on assets held for less than a year) are taxed at your marginal income tax rate. For most people in the US, that’s anywhere from 10-37%. Long-term capital gains (on assets held for more than a year) are taxed at a lower rate of 0-20%.
Based on the information we’ve gathered, it appears that the capital gains tax on crypto is somewhere between 10-20%. This range is due to a variety of factors, including the country in which you reside and the type of crypto assets you’re selling.
For example, if you’re selling Bitcoin in the United States, you may owe taxes on your gains. However, if you’re selling altcoins that are classified as utility tokens, you may not owe any taxes.
It’s important to speak with a tax professional before making any decisions about your crypto taxes. They will be able to help you figure out how much you owe and what steps you need to take to pay your taxes.