Is there even such thing as cryptocurrency tax? If you’re interested in cryptocurrency, it’ll be beneficial for you to understand how the IRS taxes these cryptocurrency investments and what composes taxable and non-taxable assets.

What Crypto Activity Is Taxable?

It’s important to acknowledge that when investing and transacting with cryptocurrency, it’s pretty much taxed just like stocks are, which means you must record any capital gains or losses when selling it. Below are the most typical crypto-related activities that must be reported on your tax form:

  • Selling your crypto for cash

  • Trading one cryptocurrency for another digital currency

  • Using cryptocurrency at a merchant as payment (for those who use crypto debit cards, this applies as well)

If you sell, buy or exchange cryptocurrency, you’ll face capital gains or losses. Much like other IRS-taxed assets, your gain may be short-term or long-term, depending on how long you held the crypto before selling or trading it.

If you own cryptocurrency for less than a year before spending or selling any of it, any profits are usually considered short-term capital gains which are taxed at your ordinary-income rate. But, if you owned cryptocurrency for more than a year, any earnings or profits are likely to be long-term capital gains, subject to long-term capital gains tax rates, which are definitely higher.

What Crypto Activity Is Non-Taxable?

Now that we have a better understanding of what’s considered taxable activities in cryptocurrency, we can focus on non-taxable assets. Here are a few examples of instances that wouldn’t need to be included in your IRS:

  • Transferring like for like assets between exchanges

  • Buying cryptocurrency (this isn’t taxable, but it does set your cost-basis)

  • Gifting cryptocurrency (this excludes large gifts that may trigger other tax obligations).

  • Donating cryptocurrency (this is considered a tax-deductible)

While gifting and donating cryptocurrencies are not taxable events, you should still declare them on your tax return since you may be eligible for the itemized charitable deduction. If you don’t report taxable crypto activity and are audited by the IRS, you may face penalties, interest, and possibly criminal charges.

Do You Pay Taxes On Lost Or Stolen Crypto?

In most cases, you won’t be able to deduct losses for lost or stolen crypto from your tax return. According to the IRS, there are two types of losses for capital assets: casualty losses and theft losses. Theft losses would occur when an exchange or your wallet is hacked.

Generally speaking, casualty losses are defined as damage, destruction, or loss of crypto due to an identifiable occurrence that is sudden, unexpected, or unusual. This could involve, for example, sending your cryptocurrency to the wrong wallet or any other similar events. In either case, you cannot deduct these losses to offset your gains. Between 2018 and 2025 casualty and theft losses aren’t deductible.

How Simple Is Qualifying?

Considering that the Fresh Start Program is a federal program, you would think meeting the qualifications may be very difficult, but really, it’s a lot simpler and quicker than you think. Take the following steps in order to find out if you are eligible in as little as 3 minutes.

  1. Fill out some basic information about yourself and your back taxes here.
  2. Have a representative reach out to you to discuss your eligibility.
  3. Go through the enrollment process and finally reduce or eliminate your tax liabilities.