I Asked a CPA About Crypto Gains — Here’s What Counts as a Tax Event
Written by
Lydia Kibet
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Jenna Klaverweiden
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If you recently made money on crypto, the IRS already knows it’s on the table. The question isn’t whether you’ll owe taxes but which transactions actually trigger them.
GOBankingRates spoke to Roxanne Hendrix, a CPA and tax expert at JustAnswer, who broke down exactly how the IRS treats crypto and what counts as a taxable event. Here are some events Hendrix said will trigger crypto capital gains taxes or ordinary income tax rates.
Selling or Exchanging Crypto
Many investors think taxes apply only when they cash out dollars. But exchanging one cryptocurrency for another can also be a taxable event.
“If you buy, sell, or exchange crypto in a non-retirement account, you’ll either earn capital gains or losses,” Hendrix said.
How much you owe depends on how long you held it. If you owned it for one year or less, any profit is considered short-term and taxed at your ordinary income rate. Hold it for more than a year, and you may qualify for lower long-term capital gains tax rates.
Mining Cryptocurrency
Mining crypto and receiving rewards has tax consequences.
“You will most likely receive a form 1099-NEC for this work and that income will be counted as ordinary income for tax purposes,” Hendrix said.
Airdrops and Forks Events
Getting free crypto doesn’t always mean tax-free. Crypto airdrops and forks can trigger tax events.
“When a hard fork happens and is followed by an airdrop where you get free crypto, this results in an ordinary income,” she said. “It counts as taxable income on your tax return, and you must report it to the IRS, whether you receive a 1099 form reporting the transaction or not.”
What Doesn’t Count as a Taxable Event
Not every crypto transaction counts as a tax event. For example, buying and holding cryptocurrency doesn’t create a taxable event even if the value increases over time.
“You won’t face any tax consequences until you decide to sell or exchange the digital asset,” Hendrix said. “For crypto transactions you make in a tax-deferred or tax-free account, such as traditional or Roth IRA, these transactions don’t get taxed like they would in a brokerage account.”
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