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Why is a Crypto to Crypto trade a taxable event?
Why is a Crypto to Crypto trade a taxable event?

Read on for more information on which crypto activities the IRS views as taxable events.

Patrick Larsen avatar
Written by Patrick Larsen
Updated over a year ago

Taxes are due when you sell, trade, or dispose of cryptocurrency in any way and recognize a gain.

IRS Notice 2014-21 describes how existing general tax principles apply to transactions using virtual currency, also known as digital currency. This notice is for use by taxpayers and their preparers.

In this Notice, the IRS classifies cryptocurrency as property, and cryptocurrency transactions are taxable by law just like transactions related to any other property. This means that a crypto-to-crypto trade is a disposition of assets and will likely result in a capital gain or loss. That capital gain or loss is equal to the difference between your cost basis—or original purchase price—in the original asset and the fair market value of the asset being acquired.

In general, your crypto activities will constitute a taxable event if you dispose of your crypto.

Some common taxable events according to the IRS:

Trading one crypto for another crypto.

Selling crypto for fiat currency.

Spending crypto on goods or services.

Earning crypto income.

The following are not taxable events according to the IRS:

  • Buying cryptocurrency with fiat money and "HOLDing".

  • Donating cryptocurrency to a tax-exempt non-profit or charity.

  • Making a gift of cryptocurrency to a third party within IRS allowable limits.

  • Transferring cryptocurrency between wallets and exchanges ("self-transfer").

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