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. The IRS classifies cryptocurrency as property, and cryptocurrency transactions are taxable by law just like transactions related to any other property. Taxes are due when you sell, trade, or dispose of cryptocurrency in any way and recognize a gain.
The difference between the purchase price (cost basis) of a coin and the sale price of the coin represents the gain or loss. Calculating the gains or losses in crypto is a straightforward process.
Steps to calculate the capital gain or loss:
Step 1: Determine the cost basis, which is the purchase price initially paid for the crypto.
Step 2: Determine the value of the crypto at the time you sold or traded it.
Step 3: Calculate the difference between the cost basis and the value at the time of the sale/trade of the crypto to determine the gains or losses.
In essence:
If you sold your assets for more than you paid, you have a capital gain.
If you sold your assets for less than you paid, you have a capital loss.
For more information on Capital Gains Short and Long-Term Tax Rates, please refer to this article
For more information please refer to Tax Topic:
This information is for informational purposes only and not for the purpose of providing financial, legal, investment, accounting, or tax advice. You should contact your CPA or other qualified tax professional to obtain advice regarding your particular issue or problem.