Stablecoins are a type of cryptocurrency whose value is tied to another asset, such as a traditional currency like the US dollar or gold, to maintain a stable price. Their main purpose is to offer an alternative to the price fluctuations of cryptocurrencies like Bitcoin. To learn more about stablecoins, check out our blog post.
How stablecoins are taxed
Stablecoins, like other cryptocurrencies, are subject to capital gains and income tax even though they’re often tied to a traditional currency like USD.
Any gains or losses from the disposal or trade of stablecoins are taxable, including any transaction fees, which can also impact your taxable income.
Trading a stablecoin for another stablecoin
Stablecoins typically don’t change much in value, but even small fluctuations can result in a profit or loss when trading one stablecoin for another. That’s why it’s important to report these transactions, even if the gains are small.
Trading a stablecoin for other crypto
Trading a stablecoin to another cryptocurrency is treated as a crypto-to-crypto trade, meaning the transaction is taxable.
Capital gains tax only applies if there's a profit. Since stablecoins usually maintain a stable value, many of these trades don’t result in taxable gains. However, if there is a profit, it’s important to report it.
Example: Capital gains from trading USDC for BTC
Suppose you trade 500 USDC for BTC. When you originally received the 500 USDC, they were worth exactly $500. But at the time of the trade, the value of those USDC had risen slightly to $502. That $2 difference is considered a capital gain and may be taxable.