How much tax do I pay if I sell my crypto? – FinancePolice guide

What it means when you ‘sell’ or ‘dispose of’ crypto

Why the IRS treats crypto like property

The IRS treats virtual currency as property for federal tax purposes, which means that selling, trading, or otherwise disposing of crypto generally creates a taxable event where gain or loss equals proceeds minus cost basis IRS virtual currency guidance

Which actions count as taxable dispositions

Taxable dispositions commonly include selling crypto for fiat, trading one token for another, spending crypto to buy goods or services, and certain conversions that realize value rather than simply moving assets between your own accounts. Mere holding of a token is not a disposition; tax usually arises when ownership is exchanged or value is realized

How tax on a crypto sale is calculated: proceeds minus cost basis

What counts as proceeds

Proceeds are generally the fair market value you receive when you dispose of crypto, usually measured in fiat at the time of the transaction, and transaction fees can affect the amount reported as proceeds on some records About Form 8949

What forms part of cost basis

Cost basis is typically the purchase price plus acquisition costs such as fees, and that basis is subtracted from proceeds to calculate gain or loss; keeping records of the original purchase amounts and fees is essential to compute basis accurately Tax Foundation guide

The result of proceeds minus cost basis is a capital gain when positive or a capital loss when negative, and that outcome is what you report for the tax year when the disposition occurred

Quick guide to holding period and the tax rate that applies

Short-term versus long-term holding periods

How long you held the asset matters. Assets held one year or less generally produce short-term gains that are taxed at ordinary-income rates, while assets held more than one year can qualify for long-term capital-gains treatment, which typically uses a different set of tax rates IRS virtual currency guidance

Why holding period matters for your tax rate

The holding period starts the day after you acquire the asset and ends on the day you dispose of it, so exact dates matter when classifying a gain as short-term or long-term. Check transaction timestamps and keep clear purchase records to determine the correct period

Common cost-basis methods and how to choose one

FIFO, specific identification, and practical implementation

There are different matching methods that determine which lot is used when you sell part of your holdings; FIFO uses the earliest-acquired units first while specific identification lets you match particular purchases when you can document them, and the method you use can change your reported gain amounts About Form 8949

How brokers and wallets may report basis

Some exchanges apply a default matching method and may report basis on information returns, but reporting practices and formats vary, so you should compare exchange reports to your own records before filing PwC tax reporting update and review the final IRS regulations on broker reporting

Reporting sales: Form 8949, Schedule D, and exchange 1099s

When to use Form 8949 and Schedule D

Most disposals of crypto that create gains or losses are reported on Form 8949 with totals carried to Schedule D on your federal return; Form 8949 helps list each disposition and the basis and proceeds used to calculate the gain or loss About Form 8949. For background on new 1099 reporting rules see 1099-DA explained

How exchange 1099s fit into your return

Exchanges may provide 1099-series information returns, including broker-style forms, but recent changes in reporting thresholds and formats have produced mismatches that taxpayers must reconcile when preparing a return PwC tax reporting update. See the IRS filing guidance on digital assets and compare exchange reporting practices in our coverage of exchange reporting

Recordkeeping checklist: what to save and why it matters

Key records to keep for each transaction

How long to retain records and why

Retain records long enough to support your returns and any potential inquiries; consistent fiat valuation at the time of each transaction is necessary to compute basis and proceeds accurately, and keeping exchange statements and wallet histories helps if you need to reconcile differences later Tax Foundation guide

Tools and resources that can help prepare your tax report

Types of software and what they do

Tax and portfolio software can import exchange data, apply matching methods like FIFO or specific identification, and produce reports that help populate Form 8949 and reconcile with 1099s; these tools can speed reconciliation but depend on clean exchange data PwC tax reporting update

When to use a tax professional

If you have complex activity such as staking rewards, airdrops, cross-chain transfers, or a high volume of trades, a tax professional can help interpret the rules, verify reporting, and consider options like amended returns or voluntary disclosure when appropriate Practitioner review

Special situations: trading, swaps, and using crypto to buy goods or services

When a token-for-token trade is a taxable event

Trading one token for another is generally a taxable disposition that creates gain or loss measured by the fair market value of the token received at the time of the swap, so token-for-token trades need the same documentation as sales for basis and holding period calculations IRS virtual currency guidance. See related market coverage in our bitcoin price analysis

How spending crypto is treated for tax purposes

Using crypto to buy goods or services typically counts as a disposition measured by the fair market value of what you received, so keep receipts or proof of transaction value when you spend crypto to support later reporting

Income events: staking, airdrops, forks and how they differ from sales

Why staking rewards and airdrops can be taxable income

Certain events like staking rewards and some airdrops are often treated as ordinary income when received, and the value recognized as income becomes the cost basis for any later sale or disposition IRS virtual currency guidance

How income events later affect cost basis for future sales

Document when and how rewards or airdrops were received and the fair market value at receipt, because that value typically becomes the basis you use to calculate gain or loss when you later sell or swap the tokens

Transfers, gifts, and like-kind topics to watch for

How simple transfers between your wallets are generally not taxable

Moving crypto between wallets you own is generally not a taxable disposition if you retain ownership, but you should keep records that show the transfer to avoid confusion when reconciling accounts IRS virtual currency guidance

How gifts and donations are treated differently from sales

Gifting crypto has distinct tax consequences for donor and recipient and is not the same as a sale, so check gift tax rules and consider professional advice if gifts are large or complex

State tax and sales-tax considerations to check in your jurisdiction

Why state rules may differ from federal treatment

Federal treatment of crypto does not automatically determine state treatment; states vary in how they tax income or sales related to crypto, so check your state tax authority for local guidance Tax Foundation guide

Where to look for state-level guidance

Start with your state tax authority website and local guidance documents, and consider consulting a local tax professional if state rules are unclear or appear to differ from federal instructions

Common mistakes taxpayers make and how to avoid them

Mismatched exchange reports and how to reconcile

Common errors include relying solely on exchange 1099s without reconciling to your own transaction history and failing to track basis properly; reconciling exchange reports, wallet histories, and your own records helps avoid mismatches and potential notices PwC tax reporting update

Ignoring staking or airdrop income

Missing ordinary-income events such as staking rewards or reportable airdrops is another frequent issue; track and report income when received so it becomes the documented basis for later dispositions Practitioner review

Practical examples and walkthroughs (conceptual)

Example: selling crypto bought at different times using FIFO and specific ID (conceptual)

To work through a conceptual example, gather the purchase dates and purchase prices for the units you sold, determine which matching method applies, compute basis for the units sold under that method, then subtract that basis from proceeds to get the gain or loss, and finally classify the gain as short-term or long-term based on the holding period About Form 8949

Checklist of steps to report a single sale

Checklist steps to report one sale include: gather the trade date and fiat amounts, confirm which units are matched to the sale under your chosen method, compute proceeds and basis, determine holding period, run totals on Form 8949, and carry totals to Schedule D

Next steps: resources, when to get professional help, and summary

Key IRS resources and where to read primary guidance

For primary guidance, review the IRS virtual currency guidance and Form 8949 instructions when preparing your return and use them to verify reporting steps and form requirements IRS virtual currency guidance

When to consult a tax pro

Consult a tax professional for complex situations such as staking, large-volume trading, cross-border issues, or if you receive an IRS notice; a professional can help reconcile records and consider options like amended returns or voluntary disclosure Practitioner review

Summary

The core rule is simple to state: most dispositions create a taxable gain or loss measured by proceeds minus cost basis, and the holding period determines whether gains are short-term or long-term for tax purposes

Use this guide as a starting point to collect records, run calculations, and reconcile exchange reports; if you need help, verify specifics with the IRS primary sources or a qualified tax professional

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.