How to legally lower capital gains tax on cryptocurrency
You generally cannot escape crypto capital gains tax, but IRS rules can lower, defer, or sometimes eliminate it. The IRS treats crypto as property.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
On this page
- Selling, swapping, or spending crypto usually creates a capital gain or loss.
- Holding a gain longer than a year may qualify for lower long-term rates.
- Retirement accounts can defer tax when IRS rules are followed.
- Capital losses and charitable gifts can reduce the tax you owe.
You will work through which crypto events are taxable, how to legally lower the tax, and what records to keep. A Crypto Profit Calculator can help you estimate the gain or loss on a trade.
Which crypto events are taxable?
For US tax purposes, the IRS treats cryptocurrency as property, not as currency. Selling, swapping, or spending it counts as a disposal, and you figure the gain or loss by subtracting your adjusted basis from what you received.
Steps to legally lower your crypto tax
The law generally does not let you erase tax on a kept gain. Several rules can lower, offset, postpone, or sometimes eliminate it through holding periods, retirement accounts, losses, and charitable gifts.
- 1Check your holding periodIf you held it for more than a year, a sale may qualify for lower long-term rates. A shorter holding period is taxed at ordinary income rates.
- 2Review retirement account rulesSome self-directed IRAs can hold crypto and defer tax when IRS rules are followed. A prohibited transaction can make the whole account taxable.
- 3Offset gains with lossesCapital losses first offset capital gains, which can reduce the tax on your gains. If losses exceed gains, a limited amount can offset ordinary income each year.
- 4Donate appreciated cryptoGiving crypto you held for more than a year to a qualified charity can let you claim a charitable deduction for its fair market value.
After you file: records and safety
For a sale, exchange, or transfer of a digital asset held as a capital asset, you report the gain or loss on Form 8949 and then Schedule D (Form 1040). Filers of Form 1040 and several other returns must answer a question about digital assets.
Frequently asked questions
Usually no. Buying with US dollars and holding creates no taxable event, and the IRS usually lets you check No on the digital asset question.
Usually no. Moving digital assets between wallets you own or control is not taxable, unless you pay a transaction fee in crypto.
Keep the purchase date, cost basis, sale date, proceeds, and fees for each transaction.
