Capital Gains Tax on Cryptocurrency: What You Need to Know in 2025

When you sell Bitcoin for more than you paid for it, the IRS doesn’t see it as a simple trade-it sees it as a capital gain. And that gain is taxable. This isn’t optional. It’s not a gray area. The IRS has been clear since 2014: cryptocurrency is property, not currency. That means every time you sell, trade, or spend crypto, you could owe taxes. And with new rules kicking in January 2025, getting it wrong could cost you more than just money-it could mean an audit.

How Crypto Capital Gains Work

The tax you pay on crypto depends on one thing: how long you held it. If you bought Ethereum in January 2024 and sold it in February 2025, you held it for 13 months. That’s long-term. If you bought it in January 2025 and sold it in March 2025? Short-term. The difference? Huge.

Short-term gains (held 365 days or less) are taxed at your regular income tax rate. For 2025, that’s between 10% and 37%, depending on how much you make. If you’re single and earn $85,000 a year, your short-term crypto profit is taxed at 24%.

Long-term gains (held over 365 days) get a break. Rates are 0%, 15%, or 20%. For a single filer in 2025, if your taxable income is under $48,350, you pay 0% on long-term crypto gains. At $50,000? You pay 15%. Over $533,400? You pay 20%. That’s a massive difference compared to paying 37% on the same profit.

What Triggers a Taxable Event

It’s not just selling crypto for cash. Every time you trade one crypto for another-say, BTC for ETH-that’s a taxable event. Even buying a coffee with Bitcoin counts. The IRS treats it as if you sold the Bitcoin for USD, then used that USD to buy the coffee. You owe tax on the gain between what you paid for the Bitcoin and its value when you spent it.

Staking rewards? Taxable as income the moment you receive them. Airdrops? Same thing. Mining crypto? Taxed as ordinary income at the fair market value on the day you mine it. If you mined 0.5 ETH worth $1,800 on June 10, 2024, you report $1,800 as income on your 2024 tax return.

Even gas fees matter. If you sent ETH to a DeFi protocol and paid $15 in gas, that $15 is part of your cost basis. Many people forget this. They only track what they bought, not what they spent to move it. That leads to overpaying taxes.

2025’s Big Change: Broker Reporting

Starting January 1, 2025, every major crypto exchange-Coinbase, Kraken, Binance.US-must report your sales to the IRS using a new form: 1099-DA. This form will show the total amount you sold and the date of each sale. By January 1, 2026, they’ll also have to report your cost basis-the price you paid for each coin.

This is a game-changer. Before, the IRS only saw what you reported. Now, they’ll have a direct line to your exchange activity. If you sold $10,000 in crypto but only reported $3,000 in gains? They’ll know. And they’re already hiring hundreds of specialists to catch mismatches.

Important note: This only applies to centralized exchanges. If you use a decentralized exchange like Uniswap or trade directly from your MetaMask wallet, the exchange doesn’t report to the IRS. But that doesn’t mean you’re off the hook. You’re still required to report every transaction yourself.

Cost Basis Methods: FIFO, LIFO, HIFO

How do you figure out your gain? You need to know your cost basis-the original price you paid for the crypto. The IRS lets you choose how to calculate it:

• FIFO (First-In-First-Out): The first coin you bought is the first one sold. This is the default if you don’t pick anything else.
• HIFO (Highest-In-First-Out): You sell the most expensive coins first. This can reduce your gains and lower your tax bill.
• LIFO (Last-In-First-Out): You sell the most recently bought coins first.
• Specific Identification: You pick exactly which coins you sold. This requires detailed records but gives you the most control.

For example: You bought 1 BTC at $30,000 in 2021, then another at $60,000 in 2024. You sell 1 BTC in 2025 for $70,000. If you use HIFO, you sell the $60,000 coin-your gain is $10,000. If you use FIFO, you sell the $30,000 coin-your gain is $40,000. That’s $30,000 difference in taxable gain.

But here’s the catch: you have to document your choice. If you use HIFO, you must prove which coins you sold. The IRS doesn’t accept guesses. You need timestamps, wallet addresses, and transaction IDs.

What About NFTs and Collectibles?

NFTs are treated differently. If the IRS considers your NFT a collectible (like digital art, rare virtual items, or trading cards), long-term gains are taxed at up to 28%, no matter your income. That’s higher than the 20% cap on regular crypto. So if you bought an NFT for $5,000 and sold it for $20,000 after 18 months, you pay 28% on the $15,000 gain-$4,200 in tax.

Not all NFTs are collectibles. If you bought an NFT as part of a game or utility token, it might be treated as regular crypto. But the IRS hasn’t given clear rules yet. Most tax pros assume the worst and treat NFTs as collectibles unless proven otherwise.

Common Mistakes (And How to Avoid Them)

Most people mess up crypto taxes in the same ways:

• Forgetting gas fees: Every transaction fee reduces your gain. If you spent $20 in gas to swap tokens, add that to your cost basis.
• Ignoring staking rewards: If you earned 0.3 ETH from staking, that’s income. Report it at its USD value on the day you received it.
• Assuming exchanges report everything: If you use a non-custodial wallet or DEX, you’re 100% responsible for tracking your own trades.
• Not keeping records: The IRS requires you to keep records for 3 years. Save screenshots of transactions, wallet addresses, and USD values.

One Reddit user lost $3,200 on a transaction because his tax software didn’t include gas fees in cost basis. He ended up paying $450 to a CPA to fix it. That’s avoidable.

Tools That Help

Manually tracking hundreds of transactions? It’s possible, but it’s a nightmare. Most people use crypto tax software:

• CoinLedger: $49-$249/year. Good for beginners and moderate traders.
• Koinly: $49-$399/year. Strong for DeFi and NFTs.
• TokenTax: $49-$499/year. Best for complex portfolios.

These tools connect to your wallets and exchanges, pull your transaction history, and auto-calculate gains using your chosen method. They generate Form 8949 and Schedule D for you. The average user saves 6 hours per year using software.

But they’re not perfect. TurboTax’s crypto add-on got 3.2/5 stars from over 1,400 users in 2024. Common complaints: missed DeFi rewards, incorrect cost basis on wrapped tokens, and confusing interface.

What’s Coming Next

The IRS is rolling out blockchain analytics tools from Chainalysis and CipherTrace by late 2025. These tools can trace transactions across wallets and identify hidden activity. Expect audit rates to jump 40%.

President Biden’s 2025 budget proposal wants to apply the wash sale rule to crypto. That means if you sell a coin at a loss and buy it back within 30 days, you can’t claim the loss. This rule already exists for stocks. If it applies to crypto, tax loss harvesting will get a lot harder.

By 2027, experts predict 92% compliance. That’s up from just 28% in 2023. The writing is on the wall: if you own crypto, you need to report it.

Final Checklist for 2025

Before you file your 2025 taxes (due April 2026), make sure you’ve done this:

1. Collected all transaction records from exchanges and wallets.
2. Identified the cost basis for every coin you sold or traded.
3. Calculated gains/losses using one consistent method (FIFO, HIFO, etc.).
4. Added staking, airdrop, and mining income as ordinary income.
5. Included gas fees and transaction costs in cost basis.
6. Reported all crypto activity on Form 1040, line 1 (the yes/no question).
7. Filed Schedule D and Form 8949 with your return.
8. Kept records for at least 3 years.

If you’re unsure, hire a CPA who specializes in crypto. Don’t guess. Don’t assume. The IRS isn’t bluffing anymore. They’ve got the tools, the staff, and the data. Your job? Be ready.