Are My Cryptocurrency Trades Taxable?
Yes. Cryptocurrency is treated as property by the IRS in the United States. This means that it is subject to capital gains and losses rules similar to other forms of property like stocks, bonds, real estate and gold.
You need to file taxes for your trades when you trade one coin for another or whenever you sell your crypto. Simply buying and holding cryptocurrency is not taxable; you only realize your gain or loss when you sell it.
How Do I Calculate My Gains and Losses From My Crypto Trades?
To calculate your capital gains and losses on your crypto trades, apply this formula:
Fair Market Value – Cost Basis = Capital Gain / Loss
Fair market value is simply how much an asset would sell for on the open market. Again, with cryptocurrency, this fair market value is how much the coin was worth in terms of U.S. dollars at the time of the sale.
Cost basis is the original value of an asset for tax purposes. In the world of crypto, your cost basis is essentially how much it cost you to acquire the coin.
For example:
Let’s say you bought 5 ETH on Coinbase in January of 2018. You paid $2,000 for these ETH ($400 for each coin). After the market took a turn for the worse, you sold 3 of these ETH in July for $150 each.
In this example, your cost basis for the 3 ETH that you sold is $1,200 (3 * $400). You sold the coins for $450 total. This is your fair market value.
