Part 2: How Crypto Gains, Losses, and Holding Periods Are Taxed

Once you know crypto is taxable property, the next question becomes: How much tax and at what rate?

Crypto gains are not taxed uniformly. The holding period, transaction type, and source of the crypto all matter. This article breaks down how gains and losses work so you can plan . . . not react.

Capital vs Ordinary Income in Crypto

Most crypto investors recognize capital gains or losses when disposing of crypto.

However, crypto received from the following, it is taxed as ordinary income at fair market value on the date received. That amount also becomes your basis for future sale.

Mining
Staking
Rewards
Payment for services

Action Step: Identify whether each unit of crypto was purchased or earned that determines how it’s taxed.

Why the Holding Period Matters

Holding period begins the day after acquisition and ends on the date of disposition. Even a one-day difference can change the tax outcome.

Short-term gains (≤ 1 year): taxed at ordinary rates
Long-term gains (> 1 year): taxed at 0%, 15%, or 20%
Net Investment Income Tax (NIIT) may apply at higher income levels

Action Step: Confirm acquisition dates before selling because timing matters more than price alone.

Calculating Gains When You Have Multiple Purchases

If you sell crypto acquired at different times and prices specific identification may be used if properly documented. Otherwise, FIFO (first-in, first-out) applies by default. Without good records, FIFO can unintentionally increase taxable gains.

Action Step: Maintain unit-level records or segregate wallets by acquisition when possible.

Key Points

Earned crypto = ordinary income
Sold or exchanged crypto = capital gain or loss
Holding period drives tax rate
FIFO applies without proper identification