Cryptocurrency Taxes: A Guide To Tax Rules For Bitcoin, Ethereum And More Bankrate
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence. Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Editorial disclosure
All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication. Main Menu Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Main Menu Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Main Menu Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure Cryptocurrency taxes A guide to tax rules for Bitcoin Ethereum and more
Chesnot/Getty Images Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence. Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Editorial disclosure
All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication. Chesnot/Getty Images Written by Senior investing and wealth management reporter Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. July 19, 2022 Edited by Managing editor Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. July 19, 2022 Share
Bankrate Logo Why you can trust Bankrate
While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation of how we make money. Bankrate Logo Why you can trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money. Investing disclosure: The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal. Bankrate Logo Editorial Integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate Logo How We Make Money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Bankrate Logo Insurance Disclosure
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. ON THIS PAGE
PREV NEXT With the staggering rise and fall of some cryptocurrencies such as Bitcoin and , crypto traders may have serious tax questions on their minds. The Internal Revenue Service (IRS) is stepping up enforcement efforts, and even those who hold the currency - let alone trade it - need to make sure they don't run afoul of the law. That might be easier to do than you think, given how the IRS treats . "It's a really big enforcement area for the IRS right now," says Brian R. Harris, tax attorney at Fogarty Mueller Harris, PLLC in Tampa. "They're generating a lot of publicity in going after people who hold, trade or use cryptocurrency. Those people can be a target for audit or compliance verification." While one of the selling points of , for example, has been its anonymity (or at least semi-anonymity), authorities have been playing catch-up in recent years with some success. "The IRS and FBI are getting better at tracking and tracing Bitcoin as part of criminal investigations," says Harris. And they can freeze assets, if needed, he adds. So it's all the more reason for those who transact in to know the law and what taxes they might incur by their actions. The good news: The IRS generally treats cryptocurrencies similarly to how it treats other capital assets such as stocks and bonds. The bad news: That treatment makes it difficult to use cryptocurrency to buy goods and services. Here are a number of key things you need to know about cryptocurrency taxes and how to stay on the right side of the law. Topics covered on this page
8 important things to know about crypto taxes
1 You ll be asked whether you owned or used cryptocurrency
Your 2022 tax return requires you to state whether you've transacted in cryptocurrency. In a clear place near the top, Form 1040 asks, "At any time during 2022, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" So you're on the hook to answer definitively whether you've transacted in cryptocurrency, putting you in a position to potentially lie to the IRS. If you don't answer honestly, you could be in further legal jeopardy, and the IRS does not look kindly on liars and tax cheats. However, there is a footnote. In a clarification, the IRS said that taxpayers who only purchased virtual currency with real currency were not obligated to answer "yes" to the question. 2 You don t escape being taxed just because you didn t get a 1099
With a bank or brokerage, you (and the IRS) will typically get a Form 1099 reporting the income you've received during the year. That may not be the case with cryptocurrency, however. "There isn't really the same level of reporting yet for cryptocurrency, relative to typical 1099 forms for stocks, interest and other payments," says Harris. "The IRS doesn't get great reporting from Coinbase and other exchanges." However, a November 2021 law will require greater tax reporting for those in the industry starting on Jan. 1, 2023. The law requires brokers – including controversially, anyone who moves digital assets for another – to report that info to the IRS on a 1099 or similar form. Opponents say the law would require anyone who moves cryptocurrency, including and , to follow the new rules, including those who have no access to that info. However, lawmakers are already working on a new bill to more narrowly define who the law applies to. But the lack of a 1099 won't let you escape any tax liability, and you'll still have to report your gains and pay tax on them. Still, it's not all bad news: If you had to take a capital loss, you can deduct that on your return and reduce your taxable income. 3 Just using crypto exposes you to potential tax liability
You might think that if you only use – but not trade – cryptocurrency you're not liable for taxes. Not true! Any time you exchange virtual currency for real currency, goods or services, you may create a tax liability. You'll create a liability if the price you realize for your cryptocurrency – the value of the good or real currency you receive – is greater than your cost basis in the cryptocurrency. So if you get more value than you put into the cryptocurrency, you've got yourself a tax liability. Of course, you could just as well have a tax loss, if the value of goods, services or real currency is below your cost basis in the cryptocurrency. In either case, you'll have to know your cost basis to make the calculation. It's important to note that this is not a transaction tax. It's a capital gains tax – a tax on the realized change in value of the cryptocurrency. And like stock that you buy and hold, if you don't exchange the cryptocurrency for something else, you haven't realized a gain or loss. 4 Gains on crypto trading are treated like regular capital gains
So you've realized a gain on a profitable trade or purchase? The IRS generally treats gains on cryptocurrency the same way it treats any kind of capital gain. That is, you'll pay on short-term capital gains (up to 37 percent in 2022, depending on your income) for assets held less than a year. But for assets held longer than a year, you'll pay , likely at a lower rate (0, 15 and 20 percent). And the same rules for netting capital gains and losses against each other also applies to cryptocurrencies. So you can deduct capital losses and realize a net loss of up to $3,000 each year. If your net losses exceed this amount, you'll have to carry them over to the next year. 5 Crypto miners may be treated differently from others
Do you mine cryptocurrency as a business? Then you might be able to deduct your expenses, as a typical business would. Your revenue is the value of what you produce. "If you mine cryptocurrency, you realize income at the fair market value, so that's your basis in the cryptocurrency," says Harris. "If this is a trade or business, your expenses may be deductible." But that last bit is the key point: You have to be running a trade or business to qualify. You can't operate your mining rig as a hobby and enjoy the same deductions as an actual business. 6 A gift of crypto is treated the same as other gifts
If you've given cryptocurrency to someone, perhaps a younger relative as a way to spark interest, your gift will be treated the same way as any similar gift would be. So it can be subject to the gift tax if it's over $16,000 in 2022. And if it comes time for the recipient to sell the gift, the cost basis remains the same as the giver's cost basis. That said, there are , even if you go over the annual threshold, such as taking advantage of the lifetime exemption. 7 Inherited cryptocurrency is treated like other inherited assets
Inherited cryptocurrency is treated like other capital assets that are passed from one generation to another. They may be subject to estate taxes if the estate exceeds certain thresholds ($12.06 million in 2022). Like stock, cryptocurrency enjoys a stepped-up cost basis to the fair value on the day of death. So generally, cryptocurrency is treated for most people like a typical capital asset, says Harris. 8 The wash-sale rule does not apply to cryptocurrency
While the IRS treats cryptocurrency mostly as it does capital assets, it takes a totally different approach when it comes to . And that's actually beneficial for crypto traders. Normally, when a trader sells an asset and declares a loss, the trader must not have purchased the asset (or a very similar one) within 30 days before or after the sale. If the trader repurchases the asset within that 30-day window, it's declared a wash sale. So the loss can't be claimed as a write-off until the trader refrains from purchasing the asset within at least the 30-day window. But the wash-sale rule does not exist for cryptocurrency. So traders can sell their position, book a loss and then literally repurchase the asset moments later and still be able to claim the loss. That rule is advantageous because it allows traders to capture while still being invested, effectively, meaning it's riskless to actually avail yourself of the tax write-off. But legislators have been discussing closing this loophole, so it may not exist much longer. Bottom line
It can be surprisingly onerous to actually use cryptocurrencies, from tracking your cost basis, noting your effective realized price and then potentially owing tax (even without an official Form 1099 statement). Plus, the IRS is stepping up enforcement and surveillance on potential tax evasion by looking more closely at who's exchanging cryptocurrencies. All these factors help make cryptocurrencies more difficult to use and likely stymie their broader rollout. Written by James Royal Senior investing and wealth management reporter Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more. Edited by Managing editor up next Part of Investing Here are the basics on how Bitcoin mining works and some key risks to be aw... Sep. 27, 2022 Investing These brokers can help you if you’re looking to buy crypto or trade t... Nov. 1, 2022