Is trading one crypto for another taxable?

Yes. Swapping one cryptocurrency for another is a disposal and triggers a capital gain or loss measured against your cost basis in the coin you gave up.

Do wash sale rules apply to crypto?

Under current law the wash sale rule applies to securities, not property, so crypto losses can generally be harvested and repositions made immediately. Proposed legislation could change this.

Crypto Trading Taxes: Capital Gains, DeFi Income, and IRS Reporting

10 min readTraderTaxHQ

Cryptocurrency trading creates unique tax challenges. The IRS treats crypto as property, meaning every trade is a taxable event.

Basic Crypto Tax Rules

Every sale, trade, or exchange is a taxable event

Trading one crypto for another triggers capital gains

Receiving crypto as income is taxable at fair market value

Mining and staking rewards are ordinary income

Capital Gains Treatment

Short-term: Held less than 1 year, taxed as ordinary income

Long-term: Held more than 1 year, taxed at 0%, 15%, or 20%

Cost Basis Methods

You can use different methods to determine cost basis:

FIFO (First In, First Out): Oldest coins sold first

LIFO (Last In, First Out): Newest coins sold first

Specific Identification: Choose which coins to sell

DeFi Tax Implications

DeFi activities create additional complexity:

Liquidity provision: Adding/removing liquidity may be taxable

Yield farming: Rewards are ordinary income when received

Token swaps: Each swap is a taxable trade

Airdrops: Taxable as income at fair market value

IRS Reporting Requirements

Report all crypto trades on Form 8949

Answer the crypto question on Form 1040

Report income from mining, staking, and airdrops

Maintain detailed transaction records

Exchange Reporting

Exchanges are increasingly issuing 1099 forms, but they often have limited information. Use specialized crypto tax software to aggregate across exchanges.

Frequently Asked Questions

Is trading one crypto for another taxable?: Yes. Swapping one cryptocurrency for another is a disposal and triggers a capital gain or loss measured against your cost basis in the coin you gave up.
Do wash sale rules apply to crypto?: Under current law the wash sale rule applies to securities, not property, so crypto losses can generally be harvested and repositions made immediately. Proposed legislation could change this.

Need Help With Your Trading Taxes?

Our team specializes in trader tax preparation and planning. Schedule a consultation today.

Schedule Consultation