Bitcoin and Taxes in the United States


Taxation of Bitcoin and other cryptocurrencies in the U.S.

For federal tax purposes, cryptos like Bitcoin and Ether are treated as property. Under currently applicable law,  cryptocurrency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

As such, general tax principles applicable to property transactions apply to transactions involving the sale or exchange of cryptos. Property held by a taxpayer is generally considered a capital asset and will be subject to capital gains tax.

Bitcoin capital gains tax – Sale or Exchange


Capital assets include all property held for personal, investment or business purposes unless specifically excluded from its definition. As such, the sale or exchange of cryptocurrency is a taxable event subject to capital gains tax.

In the event of the sale of cryptocurrency, capital gain or loss is equal to the difference between the sale price of the cryptocurrency and the adjusted basis of the cryptocurrency.

In the event of the exchange of cryptocurrency, capital gain or loss is calculated by the difference between the fair market value of the cryptocurrency on the date of the exchange and the adjusted basis of the cryptocurrency.

The sale or exchange of cryptocurrency will result in a net gain or loss and will be taxed as a short-term capital asset at ordinary income tax rates or as long-term capital assets at reduced rates, depending on the amount of time the capital asset is in the hands of the taxpayer (i.e. holding period).

Cost Basis and Adjusted Basis

Generally, the basis of a coin or token purchased is the cost paid by the taxpayer, also known as the cost basis. The basis is adjusted for specific items including transaction fees and commissions related to the purchase. Altogether these items can be considered the acquisition cost.

In the case of an initial coin offering (ICO), a taxpayer may receive an investible token (security token) or future access to a product or service (utility token). The basis for either a security token or utility token will be the acquisition cost, as explained above.

Further, though there is no explicit guidance regarding the method to identify the cost basis of cryptocurrencies in a sale or exchange, it can be assumed the IRS will default to First-In-First-Out (FIFO) treatment for cost basis as a logical default position. Taxpayers must apply a consistent methodology to identify the cost basis for their cryptocurrency and are encouraged to keep detailed records of all exchanges. The cost basis or adjusted basis will be reported on Form 8949 and Form 1040, Schedule D.

Amount Realized

Generally, the amount realized in the sale or exchange of property is the fair market value of the property received by the taxpayer (transferor).

In the case the cryptocurrency exchanged is listed on an exchange and the exchange rate of the cryptocurrency to U.S. dollars is established by supply, the fair market value of the currency can be determined by converting the cryptocurrency into U.S. dollars at the exchange rate, in a reasonable manner that is consistently applied.

In the event of the sale of cryptocurrency, the amount realized by the taxpayer is equal to the sale price and any other consideration given to the taxpayer in exchange for their cryptocurrency.

Similarly, in the event of the exchange of cryptocurrency, the amount realized by the taxpayer is equal to the fair market value of the incoming cryptocurrency on the date of the exchange and any other consideration given to the taxpayer in the exchange.

For transactions occurring before January 1, 2018, the sole exchange of like-kind property, i.e. one cryptocurrency against another cryptocurrency was a non-taxable event in which no gain or loss was recognized by the transferor or transferee.

However, beginning January 1, 2018, all exchanges of non-real property, such as the exchange of one cryptocurrency for another, is a taxable event and should be accounted for at the fair market value.

If the taxpayer sells or exchanges cryptocurrency for other property, capital gain or loss must be recognized as mentioned above. In the case where one cryptocurrency is exchanged for a different cryptocurrency (i.e. no U.S. dollars actually exchanged), capital gain or loss must be recognized in USD for the difference between the fair market value of the new currency and the basis of the original cryptocurrency.

To illustrate, if 1 BTC (basis $5,000) was exchanged for 10,000 units of ADA and 1 ADA = $0.60, the taxpayer will need to recognized gain in the amount of $1,000 [(10,000 x $0.60) – $5,000]. The character of this gain is dependent on the holding period of the original currency in the hands of the taxpayer.

The taxpayer’s total net capital gain or loss (i.e. net short-term and long-term capital gains and losses) will be reported on the taxpayer’s Form 1040.  Please refer below to the applicable capital gain taxes rates to be applied and detailed reporting.

Any subsequent sales or exchanges of the cryptocurrency in the hands of the taxpayer will follow capital gain or loss recognition as explained above.  The basis of the newly exchanged cryptocurrency is equal to the basis of the old cryptocurrency. The holding period of the new currency in the hands of the taxpayer will begin on the day of the exchange.

Amount Recognized

In the event of the sale of cryptocurrency, the amount recognized as capital gain or loss is the difference between the sale price of the cryptocurrency and the adjusted basis of the cryptocurrency.

In the event of the exchange of cryptocurrency, the amount recognized as capital gain or loss is the difference between the fair market value of the cryptocurrency on the date of the exchange and the adjusted basis of the cryptocurrency.

This will be reported on Form 8949 and Form 1040, Schedule D.

Holding Period

On the date of the sale or exchange of the cryptocurrency, the taxpayer must identify the holding period for the cryptocurrency in order to apply the appropriate capital gains treatment.

Generally, if the cryptocurrency in the hands of the taxpayer is exactly one year (365 days) or less, the gain or loss from the sale or exchange of cryptocurrency is deemed to be a net short-term capital gain or loss.

If the virtually currency in the hands of the taxpayer exceeds one year (more than 366 days), the gain or loss from the sale or exchange of cryptocurrency is deemed to be a net long-term capital gain or loss.

The beginning and end dates of the holding period will be reported on Form 8949.

Short-Term Gain/Loss Treatment

If the sale or exchange of cryptocurrency results in a net short-term gain or loss, the capital gain or loss will be subject to ordinary income tax at the taxpayer’s respective income tax rate.

The taxpayer’s total net capital gain or loss (i.e. net short-term and long-term capital gains and losses) will be reported on the taxpayer’s Form 1040. Specific details regarding the taxpayer’s short-term gain or loss will be reported on Schedule D and Form 8949 (Part I).

Please see the table below for the 2017 tax rates for Individual Filers:

Taxable Income Tax Rate
$0 – $9,325 10%
$9,326 – $37,950 $932.50 plus 15% of the amount over $9,325
$37,951 – $91,900 $5,226.25 plus 25% of the amount over $37,950
$91,901 – $191,650 $18,713.75 plus 28% of the amount over $91,900
$191,651 – $416,700 $46,643.75 plus 33% of the amount over $191,650
$416,701 – $418,400 $120,910.25 plus 35% of the amount over $416,700
$418,401 or more $121,505.25 plus 39.6% of the amount over $418,400

Long-Term Gain/Loss Treatment

If the sale or exchange of cryptocurrency results in a net long-term gain or loss, the amount capital gain or loss will be subject to reduced tax rates dependent on the taxpayer’s respective income tax bracket.

To determine the correct reduced tax rates and calculate long-term capital gains tax appropriately, the taxpayer should use the instructions in the Form 1040.

The taxpayer’s total net capital gain or loss (i.e. net short-term and long-term capital gains and losses) will be reported on the taxpayer’s Form 1040. The respective long-term capital gains taxes calculated using the worksheet mentioned above will be reported using Form 1040. Specific details regarding the taxpayer’s long-term gain or loss will be reported on Schedule D and Form 8949.

Please see the table below for the 2017 preferential long-term capital gain tax rates for individual filers:

Taxpayer’s Income

Tax Bracket

 Applicable Long-Term Capital Gain

 Tax Rate

39.6%  20 %
35%, 33%, 28% or 25%  15 %
10% or 15%  0 %

Ordinary Income Offset by Net Capital Losses

If the taxpayer’s short-term and long-term capital gains and losses in the tax year result in a net capital loss position, the taxpayer can offset their ordinary income by the lesser of the net capital losses accumulated or $3,000. Any remaining net capital losses are carried forward indefinitely, retaining its original short-term or long-term character, and can be used in future tax years to offset ordinary income in the same fashion.

To report the offset of any ordinary income by net capital losses, the taxpayer will report this amount on Form 1040 and Schedule D. 

Net Investment Income Tax (NIIT)

In addition to any capital gains tax or ordinary income tax relating to the sale or exchange of cryptocurrency, the disposition of the cryptocurrency in the hands of the taxpayer is also subject to the net investment income tax (NIIT). Generally, the gain from the sale or exchange of cryptocurrency can be reduced by losses deductible under IRC Sec. 165. However, if the capital gain or loss is recognized by the taxpayer as income recognized from a trade or business, the NIIT will not apply. Otherwise, the NIIT is applied at 3.8% to lesser of the taxpayer’s capital gain from the sale or exchange of the cryptocurrency or the modified adjusted gross income (MAGI) that exceeds the taxpayer’s applicable threshold amount, as explained in IRS Form 8960 Instructions.

The taxpayer must report the NIIT on Form 8960 and on Form 1040.

Income Tax for cryptocurrencys


In general, gross income is all income derived from any source. The following discussion investigates income generated from activity related to cryptocurrency. Generally, all income received from activities related to cryptocurrency will be included in the taxpayer’s taxable income and taxed at the respective ordinary income tax rate.

Please refer to the 2017 tax rates for Individual Filers table for short term capital gains for applicable tax rates.

Taxes on Airdrops


United States tax advisors suggest taking a conservative approach when recognizing income from airdrops.  As such, the airdrop cryptocurrency will be taxed as ordinary income on the date of receipt and the holding period will begin on that day. The basis of the airdrop cryptocurrency and the amount recognized as ordinary income will be the fair market value of the cryptocurrency on the day it is received (i.e. “matching basis”).

There may be cases in which the value of the airdrop cryptocurrency is of minimal or zero value for which there is no true value based on the absence of a market to sell or exchange the currency.

To report the airdrop cryptocurrency as ordinary income, the taxpayer will report the fair market value as other ordinary income on Form 1040.

Any further sales or exchanges of the airdrop cryptocurrency will follow capital gain or loss recognition.

Taxes for Hard Forks


The reasonable approach, supported by tax advisors and the American Bar Association, assigns the original cost basis with the original coin and a $0 basis for the new coin on the day the hard fork occurs.

If the hard fork cryptocurrency is subsequently sold or exchanged, the amount realized on the day of the sale or exchange is determined .  Accordingly, the holding period for the forked cryptocurrency will start the day the hard fork occurs. Logically, the holding period of the original cryptocurrency remains, or is tacked.

Taxes on Mining income


In general, all income or rewards received by a taxpayer in excess of $400 generated from the mining of cryptocurrency must be reported to the IRS. The taxpayer must also identify whether they are a hobby or (self-employed) business miner for tax reporting purposes.

Hobby Miners

If the taxpayer is a hobby miner, such that they do not generate over $400 in business mining income and do not engage in mining activity as a self-employed trade or business, the income received by the taxpayer as it relates to cryptocurrency mining will be treated as ordinary income. Any losses associated with mining cryptocurrency in this situation (i.e. hobby losses), cannot be applied against the taxpayer’s ordinary income.

To report ordinary income from mining as a hobby, the taxpayer will report the amount received as income on Form 1040. If the taxpayer chooses to itemize their deductions on their tax return rather than take the standard deduction, they are allowed to deduct expenses up at a maximum amount of 2% of their adjusted gross income on Schedule A.  This 2% allowance applies to all itemized expenses for the tax year incurred by the taxpayer, including those that relate to virtual mining.

Business Miners

If the taxpayer is engaged in a trade or business for which cryptocurrency mining generates trade or business income, owns/leases their own mining (business) equipment and has over $400 in business mining income, the taxpayer must report any income or rewards received as self-employment income. Expenses related to the mining business activity including but not limited to depreciation of mining equipment, electricity, and hardware may be deducted for tax purposes. Business miners are also subject to self-employment tax at a rate of 15.3% for the 2017 and 2018 tax year.

To report business income from mining, the taxpayer will report the amount received as self-employment income and any related mining business expenses on Schedule C. The self-employment income is then translated from Schedule C to Form 1040. Additionally, the self-employment tax beared by the taxpayer will be calculated and reported on Schedule SE. The self-employment tax is then translated from Schedule SE to Form 1040.

It is important to note unlike hobby mining income, net losses generated from the business mining activity may be used to offset the taxpayer’s ordinary income.

Taxes on Staking


Staking (proof of stake) income should be recognized similar to mining income on the basis of a similar fact pattern. The taxpayer must also identify whether or not their staking activity is a hobby or business activity for tax reporting purposes. As such, income and expenses should be recognized and reported as in mining.

Taxes on Lending


In the eyes of the IRS, cryptocurrency is property instead of a true fungible medium of exchange such as money. Unlike cash, property is not mutually interchangeable, especially when unique and fluctuating significantly in value.

Consistent with the treatment of cryptocurrency as property, the borrower must ensure the repayment to the taxpayer (lender) is the same amount in value and denomination (when translated to USD).  Any difference must be recognized as a capital gain or loss.

Throughout this time while guidance is unclear, the taxpayer is encouraged to record all transactions to the best of their ability.

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Initial Coin Offering (ICO)


When an Initial Coin Offering takes place, cryptocurrency companies receive crowdfunding from investors in exchange for an investible token (security token) or future access to a product or service (utility token).

Security Token

Jay Clayton, Chairman of the U.S. Securities and Exchange Commission, affirmed by way of the Howey Test (i.e. security investment test), most security tokens received from an ICO operate identically to investments. Therefore, most security tokens identify as securities and should be regulated and reported as such.

Similar to IPOs, the basis of security tokens issued in an ICO to the taxpayer will be recorded at the taxpayer’s acquisition cost and no income will be recognized on the date of receipt. However, the issuer must provide the taxpayer with Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to summarize the activity of the security over the tax year.

Any subsequent sales or exchanges of the security token in the hands of taxpayer will follow capital gain or loss recognition.

Please note some specific security tokens issued via ICO’s have been identified by the SEC as non-securities, and therefore will have different treatment.

Utility Token

Unlike to security tokens, utility tokens operate similar to a coupons or discounts and do not possess ownership rights. Further, the utility token in the hands of the taxpayer does not provide the taxpayer with the unfettered right to the underlying blockchain technology from which the cryptocurrency company owns. As such, the purchase of a utility token in an ICO will be treated as a purchase of (intangible) property and no income will be recognized on the date of receipt. The basis of the utility token will be the taxpayer’s acquisition cost.

Any subsequent sales or exchanges of the utility token in the hands of taxpayer will follow capital gain or loss recognition.

Taxes on Margin Trading


In general, any financial derivative (futures, swaps, and forwards) that do not trade on exchanges or boards of trade which are not located in the United States do not meet Section 1256 contracts. The financial result of these transactions would be subject to the capital gains regime mentioned in the Capital Gains Section.

Section 1256 contracts are those that 1) with respect to the amount required to be deposited and withdrawn depends on a system of marking to market and 2) are traded on or are subject to the rules of a qualified board or exchange as defined in IRC Sec. 1256(g)(7). The taxation of the financial result of these contacts are treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss.

As Margin Trading of Bitcoin and other cryptocurrencies will generally not meet the requirements of the Section 1256 contracts, they will be subject to Capital Gains regime as mentioned above.

FBAR and FATCA reporting


US taxpayers need to file FBAR (Foreign Bank and Financial Accounts) and FATCA (Foreign Account Tax Compliance Act) reports, if their foreign assets / accounts exceed certain thresholds. There still might be some legal uncertainty on what crypto holdings would qualify as foreign assets, but considering the severe penalties for FATCA and FBAR reporting violations, we recommend reporting all cryptocurrency holdings as foreign assets.

FBAR reporting

Any United States person must file an annual informational Report on Foreign Bank and Financial Accounts (FBAR) or FinCen 114 if he/she has:

  1. a financial interest in or signature or other authority over at least one financial account located outside the United States, if
  2. the aggregate value of those foreign financial accounts exceeded USD 10,000 at any time during the calendar year reported

The details reported include:

  • Name on the account,
  • Account number,
  • Name and address of the foreign bank,
  • Type of account, and
  • Maximum value during the year

This report is separate from the Income Tax reporting and must be filed online using the BSA E-filing System and has an original due date of April 15th of the following tax year. The filing deadline is expended automatically to October 15th of the following tax year.

What are penalties for FBAR violation?

If the violation is non-willful, the civil penalty is USD 10,000 per account, per violation.

For willful violation the penalty is equal to the greater of USD 10,000 or 50% of account balances. In such cases also criminal penalties may also apply.

FATCA reporting

United States taxpayer living abroad or in the United States, who holds specified foreign financial assets and files an income tax return, must also file Form 8939, Foreign Account Tax Compliance Act (FATCA).

The reporting thresholds for Form 8938, Statement of Specific Foreign Financial Assets, depend on whether a taxpayer files a joint income tax return or lives abroad. You can find below the summary of the thresholds or visit the IRS website for more details:

Taxpayers living abroad

You are considered to live abroad if you are a U.S. citizen whose tax home is in a foreign country and you have been present in a foreign country or countries for at least 330 days out of a consecutive 12-month period.

  • If you are not a married person filing a joint income tax return you must report if the total value of your specified foreign financial assets is more than USD 200,000 on the last day of the tax year or more than USD 300,000 at any time during the year.
  • If you are married filing a joint income tax return you must report if the total value of specified foreign financial assets is more than USD 400,000 on the last day of the tax year or more than USD 600,000 at any time during the year.

Taxpayers living in the United States.

  • If you are unmarried you must report if the total value of your specified foreign financial assets is more than USD 50,000 on the last day of the tax year or more than USD 75,000 at any time during the tax year
  • If you are married filing a joint income tax return you must report if the the total value of your specified foreign financial assets is more than USD 100,000 on the last day of the tax year or more than USD 150,000 at any time during the tax year.
  • If you are married filing separate income tax returns you must report if the total value of your specified foreign financial assets is more than USD 50,000 on the last day of the tax year or more than USD 75,000 at any time during the tax year. For purposes of calculating the value of your specified foreign financial assets in applying this threshold, include one-half the value of any specified foreign financial asset jointly owned with your spouse. However, report the entire value on Form 8938 if you are required to file Form 8938.

What are FATCA Penalties?

There are severe penalties for each FATCA reporting violation that may accumulate to a huge amount. The statute of limitations can also be considerably extended for the corresponding tax year and criminal penalties may apply.

Failing to disclose may result in a a USD 10,000 penalty per each violation, an additional penalty of up to USD 50,000 for continued failure to file after IRS notification, and a 40 percent penalty on an understatement of tax attributable to non-disclosed assets.

The statute of limitations is also extended to six years after you file your return, if you omit from gross income more than USD 5,000 that is attributable to a specified foreign financial asset. If you fail to file or properly report an asset on Form 8938, the statute of limitations for the tax year is extended to three years following the time you provide the required information.

How to file FBAR and FATCA?

Considering the complexity and the risks of violating FBAR and FATCA reporting we recommend using professional applications and / or advisors to file FBAR and FATCA reports.

CryptoTax US application includes both FATCA and FBAR reporting based on the framework developed and approved by a Big 4 accounting firm.

Tax Reporting Forms


To locate a federal tax reporting form, please click on the following link and input the form (product) number you would like to learn more about: IRS Form Search

State Taxes


Most states have not issued guidance on income tax treatment of cryptocurrency. In the absence of state guidance, taxpayers will need to consider how the state taxes other forms of currency and to what extent state tax treatment follows federal rules.

Bitcoin Tax FAQ


Is Bitcoin taxable?

For US federal tax purposes, Bitcoin and other cryptocurrencies are treated as property. As such, general tax principles applicable to property transactions apply to transactions involving the sale or exchange of cryptocurrency. Property held by a taxpayer is generally considered a capital asset and will be subject to capital gains tax.

When do you have to pay taxes on Bitcoin?

The sale or exchange of cryptocurrency is a taxable event subject to capital gains tax. For example, if you exchange Bitcoin for Ether, you will need to tax the capital gain or loss resulting from this transaction.

How is Bitcoin taxed?

The sale or exchange of cryptocurrency will result in a net gain or loss and will be taxed as a short-term capital asset at ordinary income tax rates or as long-term capital assets at reduced rates, depending on the amount of time the capital asset is in the hands of the taxpayer (i.e. holding period). That means if you hold crypto for more than a year (without selling or exchanging it), you will pay long-term capital gains when you sell or exchange.

How to pay taxes on Bitcoin?

You will need to calculate short-term and long-term capital gains and provide the details in the Form 1040 and Form 8949. With the CryptoTax application the capital gains will be automatically calculated and you will receive the filled forms.

Do you pay taxes on Bitcoin mining?

In general, all income or rewards received by a taxpayer in excess of $400 generated from the mining of cryptocurrency must be reported to the IRS. The taxpayer must also identify whether they are a hobby or (self-employed) business miner for tax reporting purposes.

If the taxpayer is a hobby miner, the income received by the taxpayer as it relates to cryptocurrency mining will be treated as ordinary income.

If the taxpayer is deemed to be engaged in a trade or business for which virtual currency mining generates trade or business income and owns/leases their own mining (business) equipment, the taxpayer must report any income or rewards received as self-employment income. Expenses related to the mining business activity including but not limited to depreciation of mining equipment, electricity, and hardware may be deducted for tax purposes. Business miners are also subject to self-employment tax at a rate of 15.3% for the 2017 and 2018 tax year.

When does the IRS consider crypto mining as a business?

In general, the IRS states a hobby activity is done mainly for recreation or pleasure. The IRS uses the following criteria to determine whether a taxpayer’s profitable activity is deemed a hobby or a trade or business. Please note one factor alone is decisive and all factors must be considered:

  • Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you change your methods of operation in an attempt to improve profitability.
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

How do I report Bitcoin mining income?

Hobby miners need to report their income from mining on Form 1040.

To report business income from mining, the taxpayer will report the amount received as self-employment income and any related mining business expenses on Schedule C and Form 1040. Additionally, the self-employment tax beared by the taxpayer will be calculated and reported on Schedule SE and Form 1040.

Which is the best crypto tax software?

CryptoTax aims to provide the best solution for reporting taxes on cryptos. We work together with a Big 4 accounting firm to ensure full legal compliance of our tax reports. CryptoTax supports all types of transactions that you need as crypto investor, trader or hodler: Airdrops, ICOs, Hard Forks, OTC Trades, Lending, Staking, Masternodes, Bounties, Swaps, Gifts and Margin Trading.

The best thing is that you get all of this for free with the early access!

Do I have to work with a crypto tax spreadsheet?

You do not need to deal with spreadsheets anymore and with CryptoTax you have an application that will save you a lot of time. It will apply certified tax logic to all your transactions, calculate taxable income and fill all the forms automatically for you.

Do I have to pay taxes on Hard Forks?

The most reasonable approach supported by tax advisors and the American Bar Association is to assign $0 cost basis for the new coin, hence there is no tax impact at the time of the fork. However, if you subsequently sell or exchange the new coin, you will need to calculate realized capital gain considering the cost basis of $0.

Where can I find a Bitcoin tax calculator?

You can use CryptoTax application, which is much more than just a tax calculator. It makes sure that all your transactions are considered properly according to the US federal tax law and fills out the IRS forms for you. The best thing is that you can use CryptoTax for free within the early access!

Bitcoin and Taxes in the USA