In the US, cryptocurrencies are treated as property by the IRS and should, therefore, be treated as such when calculating your cryptocurrency tax. There are various types of disposals (actions) that can create a taxable event for your cryptocurrencies. Examples of some of these are listed below:
Exchanging your crypto for cash (USD or any other Fiat currency)
Exchanging your crypto for another crypto (for example, using some BTC to buy some ETH)
Exchanging your crypto for a stable coin (such as selling some BTC in exchange for some Tether/USDt)
Receiving some cryptocurrency via mining, staking, an airdrop or a fork (usually these are treated as income)
Exchanging your crypto for goods or services (for example, buying a conference ticket with ethereum or a Recap subscription using bitcoin)
Simply buying some cryptocurrency using cash is not a taxable event (not until you sell or exchange that crypto). Additionally, staking coins does not create a taxable event, only when you receive income from staking does that constitute a taxable event (sort of like when you get a dividend from a stock).
It is important to note that the Like-Kind Exchanges tax rule that is often used within the real estate industry does not apply to cryptocurrencies, despite them being classified as property. This means that even though you may have exchanged ETH for DAI, both of which are cryptocurrencies defined as property, this is not considered a “like-kind exchange” and you’ll need to pay capital gains tax on the difference between you bought the ETH and when you sold it to buy DAI.
More detailed information on the different types of taxable events and how they should be treated can be found on the IRS website, however, due to the complex nature of crypto taxation we advise you to seek the help of a certified tax professional in most cases.
If you want to quickly assess how much you potentially owe on cryptocurrency you either sold or exchanged for other cryptocurrencies in 2019, simply connect your exchange accounts to the Recap.io platform and we’ll deliver you a report instantly telling you how much gained/lost and how much you could potentially owe.
We do this with encryption, meaning the only person that ever sees your data is you!
Need to sort out your crypto taxes? Use Recap, the privacy focused cryptocurrency accounting software to calculate the taxable gain or loss on your cryptocurrency investments!
Disclaimer: This article is intended as an informative piece. This is not accounting or tax advice. Please speak to a qualified tax professional about your specific circumstances before acting upon any of the information in this article.