What taxes do I pay if I sell crypto outside a retirement account?

Summary

If you sell cryptocurrency in a standard brokerage or exchange account outside of a retirement account, you will generally owe capital gains tax on any profit. The IRS classifies crypto as property, so every sale, trade, or disposal triggers the same tax rules that apply to stocks and real estate. Short-term gains are taxed at ordinary income rates (10%–37%), while long-term gains benefit from lower rates of 0%, 15%, or 20%. You may also owe state income tax and, for higher earners, an additional 3.8% Net Investment Income Tax. Understanding these obligations is essential for any crypto investor who wants to keep more of what they earn, and it's one reason many investors explore tax-advantaged* alternatives like a self-directed crypto IRA. If you’re interested in buying and selling cryptocurrency in an IRA, you can do so at iTrustCapital.

How the IRS treats cryptocurrency for tax purposes

The IRS treats cryptocurrency as property for federal tax purposes. This means every sale, trade, or disposal of crypto is subject to the same capital-gains rules that apply to stocks, real estate, and other investment property, not foreign-currency rules. This classification, established in IRS guidance on virtual currency transactions, is the foundation for every tax calculation a crypto investor needs to make.

In practical terms, gains and losses on crypto are computed the same way as gains and losses on shares of stock. You compare what you received (proceeds) to what you originally paid (cost basis), and the difference is your taxable gain or deductible loss.

Simply buying cryptocurrency with U.S. dollars is not a taxable event. Taxes come into play only when you sell, trade, or otherwise dispose of crypto in a taxable account. This is a critical distinction, holding alone does not create a tax bill.

By contrast, crypto bought and held inside a tax-advantaged retirement account, such as a self-directed IRA, is generally not taxed on each individual transaction. Platforms like iTrustCapital allow investors to buy and sell crypto within an IRA, potentially deferring or eliminating taxes on gains depending on the account type (Traditional or Roth). iTrustCapital offers low, competitive fees and secure institutional custody.

Taxable events when selling or disposing of crypto

One of the most common sources of confusion for crypto investors is knowing exactly which actions trigger a tax obligation. The table below provides a quick reference.

Taxable Events	Non-Taxable Events
Selling crypto for cash or fiat currency	Buying crypto with fiat currency
Using crypto to purchase goods or services	Transferring crypto between wallets you own
Swapping one cryptocurrency for another (e.g., ETH → SOL)	Receiving crypto as a gift (no immediate income tax)
Receiving crypto as wages, mining rewards, staking rewards, or airdrops (ordinary income)	Holding crypto without selling or disposing of it

Selling crypto for fiat is the most straightforward taxable event, but many investors overlook the others. Using appreciated Bitcoin to buy a car, for instance, creates a taxable gain equal to the difference between the Bitcoin's fair market value at the time of the purchase and your original cost basis. Similarly, swapping one cryptocurrency for another is treated as a sale of the first asset followed by a purchase of the second, even though no dollars changed hands.

Receiving crypto as compensation for work, mining, staking, or through airdrops is taxed differently. These are treated as ordinary income based on the fair market value of the crypto at the time you receive it.

Bitcoin Tokens and Cash Laying on Top of Tax Return Form

Calculating capital gains and losses on crypto sales

Your crypto gain or loss equals the sale price (proceeds) minus your adjusted cost basis. If you sell crypto for more than your basis, you have a capital gain. If you sell for less, you have a capital loss.

Here's a simple example: You buy 1 ETH for $2,000. Several months later, you sell it for $3,500. Your capital gain is $1,500 ($3,500 − $2,000). That $1,500 is the amount subject to tax—not the full $3,500 you received.

Determining your cost basis

Cost basis is the original value of a crypto asset for tax purposes, typically the amount you paid in U.S. dollars at the time of purchase, including any transaction fees. For crypto received as income, such as mining rewards or staking, the basis equals the fair market value on the date you received it.

For crypto received through an airdrop following a hard fork, the basis also equals the fair market value at the time of receipt. This amount should match what you reported as ordinary income.

When you've purchased the same cryptocurrency at different times and prices, you'll need to choose a cost-basis method to determine which units you're selling. Common methods include:

FIFO (First In, First Out): Assumes the oldest units are sold first.
LIFO (Last In, First Out): Assumes the newest units are sold first.
Specific Identification: You designate exactly which units are being sold.

Whichever method you choose, apply it consistently and keep thorough documentation. Inconsistent basis tracking is one of the most common mistakes crypto investors make at tax time.

Understanding short-term versus long-term gains

The length of time you hold crypto before selling it determines whether your gain is classified as short-term or long-term, and that distinction has a dramatic impact on your tax rate.

Crypto held for one year or less before selling produces a short-term capital gain, taxed at ordinary income rates. Crypto held for more than one year produces a long-term capital gain, taxed at preferential rates.

Holding Period	Classification	Federal Tax Rate
≤ 1 year	Short-term capital gain	10%–37% (ordinary income rates)
> 1 year	Long-term capital gain	0%, 15%, or 20%

The difference can be enormous. A high-income investor in the 37% bracket who sells crypto after 11 months could pay nearly double the rate they would owe if they had waited just one more month to qualify for the 20% long-term rate. For investors focused on long-term wealth building, this is one of the strongest arguments for a buy-and-hold approach, or for holding crypto inside a tax-advantaged account where individual transactions aren't taxed.

Netting gains and losses and applying loss limits

The IRS requires you to net your crypto gains and losses before calculating your final tax. Short-term gains and losses are netted against each other first, and long-term gains and losses are netted separately. Then the two net figures are combined.

If your total capital losses exceed your total capital gains for the year, you may deduct up to $3,000 of the net loss against ordinary income ($1,500 if married filing separately). Any unused losses carry forward to future tax years indefinitely.

High-income investors should also be aware of the Net Investment Income Tax (NIIT), an additional 3.8% tax that applies on top of capital gains rates for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly). This surtax can push the effective top rate on long-term crypto gains to 23.8%.

Reporting crypto transactions on your tax return

The general reporting workflow for crypto taxes follows a clear path: gather your transaction records, complete Form 8949, transfer the totals to Schedule D, and include the results on your Form 1040.

As of 2025, many crypto platforms may begin issuing Form 1099-DA to report digital asset transactions. However, you are responsible for reporting all gains and losses regardless of whether you receive a form from an exchange. The IRS expects full compliance based on your own records.

Forms 8949 and Schedule D

Form 8949 is where you list each individual crypto sale or disposition. For every transaction, you'll need to provide the date acquired, date sold, proceeds, cost basis, and resulting gain or loss.

Schedule D (Form 1040) summarizes the totals from Form 8949 and calculates your overall capital gain or loss for the year.

Here's the step-by-step process:

Compile all crypto transactions for the tax year from every exchange and wallet.
Separate transactions into short-term (held ≤ 1 year) and long-term (held > 1 year).
Enter each transaction on Form 8949—Part I for short-term, Part II for long-term.
Transfer the totals from Form 8949 to Schedule D.
Include the net result on your Form 1040.

Reporting ordinary income from crypto activities

Not all crypto income is a capital gain. Crypto received as wages is taxed at its fair market value when paid and reported as ordinary income on Form 1040.

If you earn crypto through self-employed mining, you may also owe self-employment tax (covering Social Security and Medicare), reported on Schedules C and SE. Mining income is taxable when received, based on the fair market value of the coins at that time.

Staking rewards and airdrops follow similar rules—they are ordinary income at the time of receipt, and the fair market value at that point becomes your cost basis for any future sale.

Income versus capital gains: Other crypto taxable events

Beyond simple buy-and-sell transactions, several less obvious crypto activities create tax obligations. Each type of event has different tax treatment and reporting requirements, and overlooking them is a common source of errors.

Receiving crypto as payment or mining rewards

Crypto earned through work, freelancing, or mining is treated as ordinary income—not capital gains. The fair market value at the time you receive the crypto determines how much income you report.

That fair market value also becomes your cost basis for any future sale, which means you could owe capital gains tax later if the crypto appreciates. For example: if you receive 0.1 BTC worth $6,000 for freelance work, you report $6,000 as ordinary income. If you later sell that 0.1 BTC for $8,000, you owe capital gains tax on the $2,000 gain.

Trading one cryptocurrency for another

Many investors mistakenly believe that swapping crypto-to-crypto is not taxable because no fiat currency is involved. This is incorrect. The IRS treats a crypto-to-crypto swap as a sale of the first asset followed by a purchase of the second.

For example, trading 1 ETH with a cost basis of $2,000 and a fair market value of $3,000 for an equivalent amount of SOL triggers a $1,000 taxable gain on the ETH. Your basis in the newly acquired SOL would be $3,000.

It's worth noting that like-kind exchange rules under Section 1031 do not apply to cryptocurrency after the Tax Cuts and Jobs Act of 2017 limited those provisions to real property.

Transferring crypto between wallets

Transferring crypto between wallets you own is not a taxable event. Moving Bitcoin from one personal wallet to another does not trigger any gain or loss.

However, transferring crypto to another person may be treated differently. If it's a gift, there is generally no immediate income tax consequence unless the value exceeds the annual gift exclusion ($18,000 per recipient for 2024, $19,000 for 2025). If it's payment for goods or services, the recipient must report the fair market value as income.

Common tax planning strategies and considerations

Understanding what you owe is only half the equation. Several legitimate planning strategies can help you manage your crypto tax burden. Always consult a qualified tax professional before implementing any strategy, as individual circumstances vary.

One of the most effective approaches is holding crypto inside a tax-advantaged account. With a self-directed crypto IRA through a platform like iTrustCapital, transactions within the account are not subject to capital gains tax at the time of the transaction. Depending on whether you choose a Traditional or Roth IRA, gains may be tax-deferred or potentially tax-free. iTrustCapital supports trading crypto and precious metals within IRAs and publishes clear fee information.

Using losses to offset gains and income

Tax-loss harvesting involves selling crypto positions that are at a loss to offset realized gains from other sales. If your net losses exceed your gains, you can deduct up to $3,000 per year against ordinary income, with any remaining losses carrying forward to future years.

One important nuance: as of the current writing, the IRS wash-sale rule—which prevents investors from selling a security at a loss and immediately rebuying the same security to claim the loss—has not been formally applied to cryptocurrency. However, legislation has been proposed to extend the rule to digital assets. Investors should stay current on this evolving area and consider consulting a tax advisor.

Donating crypto to charity

Donating appreciated cryptocurrency that you've held for more than one year to a qualified 501(c)(3) charity can be a powerful tax strategy. You may avoid paying capital gains tax on the appreciation entirely while claiming a charitable deduction for the full fair market value of the donated crypto, provided you itemize deductions.

Specific rules apply. Deduction limits are generally capped at a percentage of your adjusted gross income, and donations of crypto valued above $5,000 may require a qualified appraisal.

Record keeping and documentation best practices

Accurate records are the foundation of every strategy discussed in this article—and your best defense in the event of an IRS inquiry. For every crypto transaction, maintain the following:

Date acquired
Date sold or disposed
Amount of cryptocurrency (units)
Cost basis in U.S. dollars
Fair market value at the time of the transaction
Proceeds received
Transaction fees paid
Exchange or platform where the transaction occurred

With expanded platform reporting requirements taking effect, it's more important than ever to reconcile your personal records with any forms issued by exchanges. Consider using dedicated crypto tax software or regularly exporting transaction histories from your exchanges throughout the year rather than scrambling at tax time.

State and additional taxes that may apply

Federal taxes are only part of the picture. Most states that impose an income tax also tax capital gains, and rates vary widely. States like California tax capital gains as ordinary income at rates up to 13.3%, while states such as Texas, Florida, and Wyoming have no state income tax at all.

The 3.8% Net Investment Income Tax (NIIT) is another layer that can catch investors off guard. It applies to individuals with modified adjusted gross income above $200,000 (single filers) or $250,000 (married filing jointly) and is assessed on top of your regular capital gains rate.

If you moved between states during the tax year, your situation may be even more complex. Working with a tax professional who understands both federal crypto rules and your specific state's tax code is highly recommended.

Open an IRA at iTrustCapital

If you’re interested in buying and selling crypto in a tax-advantaged IRA, you can do so at iTrustCapital.

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Disclaimer

This article is for informational purposes only and is not intended to constitute investment or tax advice in any way or constitute an offer to buy or sell any digital asset, cryptocurrency, or security or to participate in any investment strategy.

iTrustCapital is a fintech software platform for alternative assets. TrustCapital is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular digital asset, precious metal or investment strategy.

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