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Cryptocurrency Taxation: The List of common taxable and nontaxable cryptocurrency transactions - Textbook Tax

Cryptocurrency transactions, while anonymous and decentralized, are subject to regulation by the IRS for all US taxpayers. Because of this, no matter your level of knowledge or complexity of dealings, if you have or plan to participate in any activity involving cryptocurrency, please continue reading to learn about the common taxable and non-taxable cryptocurrency transactions. By understanding how the United States taxes each crypto-related transaction, you will be a better crypto investor and trader and have a better understanding of your tax bill come tax season. Let’s start discussing the taxable and nontaxable cryptocurrency transactions based on US regulations.

Crypto Tax: Taxable Transactions

The following crypto transactions trigger capital gains or losses and may result in capital gain tax owed based on your capital asset activity.

1. Sell cryptocurrency for real currency

When you sell cryptocurrency for USD, you have made a taxable crypto transaction. In other words, if you exchange Bitcoin for US dollar, you have made a taxable transaction. Under current US law, the exchange of crypto for fiat results in a capital gain or loss based on the basis of the asset being exchanged. Therefore, if you bought Ether for $1,000 and exchanged it for USD when it was trading at $1,100, you have a capital gain of $100 on the exchange. For more information on capital gains and losses, and how they are taxed, please see:

2. Exchanged cryptocurrency for other property (other property includes other cryptos)

When you exchange or sell cryptocurrency for other property, including other cryptocurrency tokens or non-fungible tokens (“NFT”), you have made a taxable crypto transaction. In other words, if you exchange BTC for ETH or AVAX for USDC, you have made a taxable transaction under US tax law. Additionally, if you exchange ETH for a NFT, you have made a taxable transaction. Like above, this crypto transaction triggers a capital gain or loss, which is determined based on the basis of the asset exchanged. 

3. Exchanged other property for cryptocurrency

Similarity, if you exchange an NFT for ETH, you have made a taxable transaction, and so, it is important to track the basis of all property exchanged in crypto transactions. The basis of the NFT is determined on the date purchased based on the USD value of assets exchanged for the NFT. When you sell the NFT for cryptocurrency, the sale triggers a capital gain or loss based on the basis.

4. Other, less common taxable transactions to consider:

- Paid with cryptocurrency for a service or good you provided

- Pay with cryptocurrency for a good or service you received

- Received new cryptocurrency as a result of a hard fork

- Received proof-of-stake cryptocurrency rewards

- Received cryptocurrency as the result of interest crypto account

The following transactions are common Non-Taxable events: 

- Received cryptocurrency as a gift

- Donated cryptocurrency to a charitable organization

- Transferred cryptocurrency from a wallet, address, or account to another wallet, address, or account


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