Bitcoin
Here are the top cryptocurrency tax rules every bitcoin investor should know
Former President and 2024 Republican presidential candidate Donald Trump gestures during a speech on day three of the Bitcoin 2024 conference in Nashville, Tennessee, on July 27, 2024.
Jon Cherry | Getty Images News | Getty Images
Although bitcoin has fallen from a record above $73,000 as of mid-March, the price was still up more than 50% year to date, with investors weigh comments of the former president Donald Trump and this week’s Federal Reserve meetings.
The price of bitcoin has fallen to a two month low in early July after the Fed’s June minutes indicated they were not yet ready to cut interest rates.
“For too long our government has violated the cardinal rule that every bitcoiner knows by heart: Never sell your bitcoin,” Trump said Saturday during a speech at the Bitcoin Conference in Nashville.
“If I am elected, it will be the policy of my administration, United States of America, to hold 100% of all US government bitcoins currently holds or acquires in the future,” Trump said.
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Meanwhile, investors are watching for signs of a possible Democratic change in cryptocurrency policy of the vice president Kamala Harristhat entered the presidential race last week after the president Joe Biden dropped out. While Harris has yet to outline policy, some investors are hoping she will shift away from the crypto scrutiny led by Securities and Exchange Commission Chairman Gary Gensler and Sen. Elizabeth Warren, D-Mass.
While future policies and regulations on cryptocurrencies are unclear, here are some important things you need to know about taxes, experts say.
When you exchange one currency for another or sell it for a profit, it may be subject to capital gains or regular income taxes, depending on how long you have owned the asset.
After holding cryptocurrencies for more than a year, you will qualify for long-term capital gains of 0%, 15%, or 20%, depending on your taxable income. Higher earners may also owe a extra fee of 3.8%known as net investment income tax.
In comparison, short-term capital gains or regular income taxes apply to assets held for one year or less.
Your gain is the difference between the original purchase price, or “basis,” and the value of the asset when you sell or trade it — and without establishing basis, the IRS assumes it’s zero, according to Adam Markowitz, an enrolled agent at Luminary Tax Advisors in Windermere, Florida.
With zero basis, you may mistakenly declare more capital gains to the IRS.
“The burden of proof is on the taxpayer to know what they paid,” which can be challenging for investors with multiple exchanges and hundreds of transactions, especially when they don’t know what counts as a sale, he explained.
The U.S. Treasury Department and the IRS released in June final guidance for digital asset brokers, which implements mandatory annual reporting.
Mandatory annual reporting will be phased in starting in 2026, with digital currency exchanges required to cover gross sales proceeds in 2025 via Form 1099-DA. In 2027, exchanges must include the cost basis for certain digital asset sales for 2026.
With limited previous reporting, cryptocurrency investors can still establish a “reasonable allocation” before January 1, 2025, according to an IRS revenue procedure released in June.
“Even in the current year, in 2024, when you are selling tokens, it may make sense to talk to a tax professional about how you can specifically identify or allocate the cost basis for those sales,” said Andrew Gordon, tax attorney, certified public accountant and president of Gordon Law Group.