In the US, the amount you pay in federal taxes on your cryptocurrency gains depends on how long you’ve held crypto and your ordinary tax rate.
Understand the holding period
Your hold period for cryptocurrency begins the day after you acquire the asset and continues until the day you dispose of (e.g. send/sell/trade) the asset.
Crypto with a holding period of 365 days or less are subject to short term capital gains tax. Short term capital gains are taxed as ordinary income (this is the higher tax treatment scenario).
Crypto that has a holding period of 366+ days are subject to long term capital gains tax. Long term capital gains are taxed between 0 – 20% depending on your ordinary income tax rate (this is the lower tax treatment scenario).
Capital gains tax rates for 2024 taxes
The IRS released 2024 tax rates:
Example: Short-term capital gains (<365 days)
For example, let's say your annual income is $50,000, and you are filing as single. You buy one bitcoin on January 5, 2024, for $400 and sell it on January 2, 2025, for $1,000. You have a short-term capital gain of $600. This gain is taxed at your ordinary income tax rate, which for $50,000 income in 2024 is 22%. The resulting tax is 0.22 * $600 = $132 in additional federal taxes.
Example: Long-term capital gains (366+ days)
Instead, let's say your annual income is $30,000 (still filing as single). You buy one bitcoin on January 1, 2023, for $400 and sell it on January 3, 2025, for $1,000. You have a long-term capital gain of $600. Your ordinary income tax rate is 12%, but your long-term capital gains rate is 0% because your total income (including the capital gain) is below $47,025. Therefore, you pay no federal tax on this bitcoin sale.
Note that in both cases, state taxes may apply depending on your location.
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