Cryptocurrency Tax Guide 2025: How Crypto Is Taxed

Cryptocurrency and Taxes: The Basics

Cryptocurrency is treated as property for tax purposes in most countries, not as currency. This means every time you sell, trade, or spend crypto, it is a potentially taxable event. The IRS, HMRC, and most tax authorities now require reporting of crypto transactions.

Taxable Events

The following trigger a tax obligation:

Capital Gains Events

Selling crypto for fiat (e.g., selling Bitcoin for USD)

Trading crypto for crypto (e.g., swapping ETH for USDC)

Spending crypto on goods or services

Selling NFTs

Income Events

Mining rewards - taxed as ordinary income at fair market value when received

Staking rewards - taxed as income when you gain dominion and control

Airdrops - taxed as income at fair market value when received

Hard fork tokens - taxed as income when you have the ability to dispose of them

Crypto earned as payment for goods or services

DeFi lending interest

Liquidity pool rewards

Not Taxable

Buying crypto with fiat currency

Transferring crypto between your own wallets

Gifting crypto (though gift tax rules may apply)

Donating crypto to qualified charities (may qualify for a deduction)

Calculating Capital Gains

Capital gains = Sale Price - Cost Basis - Fees

Cost basis is what you originally paid for the crypto, including purchase fees. If you received crypto as income (mining, staking), the cost basis is the fair market value at the time of receipt.

Accounting Methods

When you have purchased the same cryptocurrency at different prices, you need a method to determine which coins you sold:

FIFO (First In, First Out): Most commonly used and IRS default. The oldest coins are sold first.

Specific Identification: Choose exactly which coins to sell. Can be used to minimize gains by selling higher-cost-basis coins first.

LIFO (Last In, First Out): Not explicitly allowed by IRS for crypto but used in some jurisdictions.

Average Cost: Used in some countries (not currently allowed by IRS for crypto).

Short-Term vs Long-Term (US)

Short-term: Held less than one year. Taxed at ordinary income rates (10-37%).

Long-term: Held one year or more. Taxed at preferential rates (0%, 15%, or 20%).

Holding crypto for over a year before selling can significantly reduce your tax burden.

Country-Specific Rules

United States

Form 8949 for reporting each transaction

Schedule D for summary of capital gains

New broker reporting rules from 2025 (Form 1099-DA)

The IRS asks on Form 1040 whether you engaged in digital asset transactions

Wash sale rules do not currently apply to crypto (unlike stocks), but legislation may change this

United Kingdom

Capital Gains Tax: 10% (basic rate) or 20% (higher rate) on gains

Annual CGT allowance: 3,000 GBP for 2024/25

HMRC uses share pooling (average cost basis)

Mining and staking income taxed as miscellaneous income or trading income

Germany

Tax-free after one year: If you hold crypto for more than one year, gains are completely tax-free

Gains under 600 EUR per year are tax-free (Freigrenze)

If you earned staking or lending income, the holding period extends to 10 years

Recent BFH ruling clarified that crypto gains are taxable under Paragraph 23 EStG

Other Countries

Portugal: No tax on personal crypto gains (not from professional trading)

Singapore: No capital gains tax on crypto

Australia: CGT with 50% discount for assets held over 12 months

France: Flat 30% tax on crypto gains (prelevement forfaitaire unique)

Netherlands: No CGT, but crypto is included in wealth tax (Box 3)

DeFi Tax Considerations

Decentralized finance creates complex tax situations:

Liquidity Pools

Adding tokens to a liquidity pool may be treated as a disposal (taxable). LP tokens received represent your pool share. Removing liquidity may trigger another taxable event. Impermanent loss is not a deductible loss in most jurisdictions.

Yield Farming

Rewards received from yield farming are generally taxed as income at the fair market value when received. Subsequent sale of reward tokens triggers a separate capital gains event.

Wrapping and Bridging

Wrapping tokens (e.g., ETH to WETH): Tax treatment is unclear. Conservative approach treats it as a taxable swap.

Cross-chain bridges: Similarly ambiguous. Document everything.

NFT Taxation

Buying an NFT with crypto: Taxable disposal of the crypto used

Selling an NFT: Capital gain or loss on the NFT

Creating and selling NFTs: Income from sale, potentially self-employment income

Royalties from NFT sales: Taxed as ordinary income

Tax Loss Harvesting

Since wash sale rules generally do not apply to crypto in the US (as of 2025), you can:

Sell a cryptocurrency position at a loss

Immediately repurchase the same cryptocurrency

Claim the loss on your tax return

This strategy can offset capital gains from other crypto trades or up to $3,000 of ordinary income per year, with excess losses carried forward.

Record Keeping

For every transaction, maintain:

Date and time of acquisition

Date and time of disposal

Amount of crypto involved

Fair market value in your local currency at time of transaction

Fees paid

Purpose of transaction

How Taxation.ai Helps

Taxation.ai integrates with major exchanges and wallets to automatically import your transaction history. The AI engine calculates gains using the optimal accounting method, identifies tax-loss harvesting opportunities, and generates the reports needed for filing in multiple countries.