When you dispose of an NFT, you’ll incur a capital gain or loss depending on how the price of your NFT has changed since you originally received it. When you spend cryptocurrency to purchase goods and services, you’ll incur a capital gain or loss depending on how the price of your crypto has changed since you originally received it. Your total capital gains are calculated based on the net gain or loss across all of your winning and losing positions for the year. As a result, many traders choose to intentionally sell their assets at a loss to reduce their tax liability. As discussed earlier, long-term capital gains offer significantly lower tax rates when compared to short-term gains.

• This means that, for example, if you immediately sell your cryptocurrency into USD at the moment you receive it, your tax bill will be exactly the same as if you’d received dollars.
• This information may be different than what you see when you visit a financial institution, service provider or specific product’s site.
• Be aware, however, that buying something with cryptocurrency also counts as a sale because you’re effectively selling a portion of your holdings to cover the cost of the purchase.
• Wren points out that tax positions around mining and staking are not always clear-cut, however.
• Exchanges serve as facilitators which allow users to buy and sell cryptocurrencies for traditional currency, exchange cryptocurrencies, and generally serve to facilitate cryptocurrency transactions.

If you’re disposing of your cryptocurrency taxation in Canada, the net gain or loss amount will be capital gains. However, fees incurred when conducting cryptocurrency trades still provide a tax benefit. A fee incurred in conjunction with the acquisition of cryptocurrency can be added into the cost basis of those units. Conversely, a fee paid upon the disposition of a cryptocurrency unit can be deducted from the proceeds received. Under FIFO, the first unit of a cryptocurrency you purchased will be the first unit disposed of. In the example below, using FIFO for the disposition of 2 bitcoin would result in taxable gains of $7,000.

Tax-free cryptocurrency transactions

Increase your tax knowledge and understanding while doing your taxes. For more information on basis, see Publication 551, Basis of Assets. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. When you receive property, including virtual currency, in exchange for performing services, whether or not you perform the services as an employee, you recognize ordinary income. For more information on compensation for services, see Publication 525, Taxable and Nontaxable Income.

Had the bitcoin originally been worth $50,000, the transaction would result in a $5,000 loss, which potentially could be used to offset capital gains or taxable income in the same calendar year. These are only taxable events if the value of your crypto has gone up. To determine if you owe crypto taxes, you need the cost basis, which is the total amount you paid to acquire your crypto. Then you compare that to the sales price or proceeds when you used the crypto. If you traded crypto in an investment account or on a crypto exchange or used it to make payments for goods and services, you may receive Form 1099-B reporting these transactions.

How is mining cryptocurrency taxed?

For example, let’s look at an example for buying cryptocurrency that appreciates in value and then is used to purchase plane tickets. The example will involve paying ordinary income taxes and capital gains tax. • The IRS treats cryptocurrency as property, meaning that when you buy, sell or exchange it, this counts as a taxable event and typically results in either a capital gain or loss.

Andy Rosen covers cryptocurrency investing and alternative assets for NerdWallet. He has more than 15 years of experience as a reporter and editor covering business, government, law enforcement and the intersection between money and ideas. In these roles, Andy has seen cryptocurrency develop from an experimental dark-web technology into an accepted part of the global financial system.

Cryptocurrency interest and crypto staking rewards are both considered personal income and are taxed accordingly. Let’s run through various types of cryptocurrency transactions and explain how they are taxed. On the other hand, if you earned cryptocurrency—whether that’s from a job, mining, staking or interest rewards—that earned income is generally treated as ordinary income and is reported as such. To determine the order in which you sell various cryptocurrencies, accountants use specific accounting methods like First-In First-Out or Last-In First-Out . Gross proceeds represents how much value received in exchange for disposing of your crypto-asset. Typically, this will be the fair market value of your assets at the time of disposal.