Regulation
2024 Tax Implications for Crypto Transactions in Texas
Cryptocurrency taxation has become an essential aspect of global regulation as governments seek to generate revenue from the industry. The Internal Revenue Service (IRS) seeks to enforce cryptocurrency tax remittance from non-taxpaying cryptocurrency users. Our detailed guide will tell you everything you need to know about cryptocurrency taxation in Texas.
Taxes and Texas
Texas is one of the most crypto-friendly states and tech hubs in the world, ranking second for Bitcoin ATM locations. The Lone Star State is known for allowing cryptocurrency mining and encouraging its use; therefore, there are no state income taxes on cryptocurrency. However, the IRS classifies cryptocurrency as property, and cryptocurrency users in the United States must report all cryptocurrency activity and pay applicable taxes.
Taxes generally apply to cryptocurrency-related income and capital gains under federal tax rules. Reporting cryptocurrencies and cryptocurrency-related activities in Texas on the US Individual Income Tax Return Form 1040 (f1040) requires careful filing to accurately record cryptocurrency transactions for the tax year.
Cryptocurrency Tax Reporting in Texas
To file a cryptocurrency tax return in Texas, you will need the following information:
- Name of the cryptocurrency.
- Date of acquisition.
- Date it was sold, exchanged, or otherwise disposed of.
- Revenue or selling price.
- Cost basis.
- Total gain or loss.
Traders must aggregate all crypto transactions from one reliable cryptocurrency trading platform and wallet. This allows them to capture taxable transactions and classify each one under the f1040 rules. The next step is to file IRS Form 8949 (f8949), which is classified by cost, sales price, and loss/gain for each sale. The totals are then reported via Form f1040 Schedule D. At the same time, cryptocurrencies received as compensation for providing cryptocurrency-related services are reported on Schedule 1 or Schedule C for hobby and business, respectively.
Texas currently has no clear stance on the status of virtual currency sales under state sales tax, but federal capital gains tax rates apply to the difference between the purchase and sale prices. This means that the tax changes based on federal rates regardless of the state’s non-tax policy. Brokers are required to file tax returns on Form 1099-B.
Cryptocurrency traders and users in Texas and other states are naturally looking for legal solutions to reduce the final taxes they pay on their virtual assets.
Texas residents, however, have the advantage of no state tax rules, which eliminates the burden of income taxes for cryptocurrency holders. Other ways include reducing capital gains taxes by holding crypto assets for more than 12 months. This qualifies the holder for a reduction capital gains tax based on the 2024 rate. Offsetting cryptocurrency losses against capital gains or income also reduces the final amount of applicable taxes for individuals and corporations, leaving them the opportunity to reinvest in the cryptocurrency market.
Tax Implications for Crypto Transactions in Texas
Trisha Turner, senior counsel at the IRS Office of the Digital Assets Initiative, said in a recent panel at the New York University School of Professional Studies’ 16th annual Tax Controversy Forum in Times Square, New York, that the IRS’s final cryptocurrency regulations “will require gross proceeds reporting for transactions conducted on or after January 1, 2025.”
Sales tax may be applied to goods and services purchased with cryptocurrency if those goods are taxable. When this happens, the tax rate depends on the goods or services purchased, not the instances of cryptocurrency use. You can use this tax instrument and others like it to calculate the applicable sales tax in Texas. Taxes may also be applied to properties paid for with cryptocurrency in Texas. There are no state property taxes, but county and city taxes apply to properties purchased within the state.
For cryptocurrency assets, Texans can pass on any amount of cryptocurrency to their heirs without paying any state taxes. Federal taxes may apply to cryptocurrency assets with substantial amounts. Finally, businesses registered, incorporated, or doing business in Texas may be subject to franchise tax.
Texas Tax Rules and Cryptocurrency Mining
Texas is an oil-rich state, with tons of gas flared annually. This has provided an unlikely solution for cryptocurrency miners looking for cheaper sources of energy. Cryptocurrency mining, especially for Bitcoin and Ethereum (pre-merger), is an energy-intensive activity that could prove costly for miners connected to the grid. High electricity rates could wipe out mining profits and leave individuals and businesses unprofitable.
However, Texas has become a destination for crypto miners who have taken advantage of the separation tax exemption provided by Texas law HB 591, which allows energy producers to convert vented and flared gas into electricity for cryptocurrency mining. They can legally avoid the 7.5% separation tax on the market value of natural gas under this provision. The implication is a potential boost to profits, as reflected in Riot Blockchain’s earnings of about $9.5 million in 2022 after providing electricity to the grid during periods of high demand.
Enjoy Tax Free Trading in Texas
Take advantage of Texas tax rules and enjoy tax-free transactions when you buy, sell or trade cryptocurrencies through trusted platforms. Stay up to date with cryptocurrency tax rules for 2025 to understand your position towards the US Treasury as a cryptocurrency trader/investor.