Crypto capital gains tax: holding period, rates, loss cap

Property, not currency

The IRS’s own FAQ answers the first question in one line. Virtual currency is treated as property, and the general tax principles for property transactions apply [1]. That single sentence is why the words “capital gain” attach to a coin at all.

Sell property for more than it cost, and the difference is a gain. Sell it for less, and it’s a loss. Swap one coin for another and it is still a sale of the first coin, because the FAQ treats an exchange the same way it treats a sale [1]. So the math is proceeds minus basis, on every disposal, whether or not a dollar ever came out.

The proceeds side is what a broker reports. The basis side is what the holder has to prove, and I’ll come back to that, because it is where most of the trouble lives.

Nothing here is new law. The FAQ points back to Notice 2014-21, and the property rule has not moved since [1]. What changed lately is the reporting, not the tax.

The one-year line

The Code sorts every gain and loss into two buckets by how long the asset was held. Section 1222 defines a short-term capital gain as gain on a capital asset held for not more than 1 year, and a long-term one as gain on an asset held for more than 1 year [2]. The IRS’s virtual currency FAQ says the same thing in plainer words. One year or less is short-term, and more than one year is long-term [1].

Topic 409 adds the counting rule. The holding period is counted from the day after the acquisition up to and including the day of the sale [3]. Sell on the anniversary and the coin was held for exactly one year, which is not more than one year, so it is still short-term.

Why it matters: net short-term gains are taxed as ordinary income at the graduated rates, and net long-term gains get the capital gains rates [3].

The rates, for 2025

Topic 409 gives the numbers for taxable years beginning in 2025. A 0% rate applies when taxable income is at or below $48,350 for a single filer and $96,700 for a married couple filing jointly [3]. A 15% rate applies above those lines, up to $533,400 single and $600,050 joint [3].

Above the 15% ceiling, the rate is 20% on the part of taxable income that goes over it [3]. Three rates, two lines, and the lines move with taxable income, not with the size of the trade.

Those are taxable-income thresholds, not gain sizes. A small gain on top of a large salary is taxed at the salary’s bracket. And the rate applies to net capital gain, after losses are netted [3].

There is no crypto-specific rate anywhere on the page. A coin is property, and property gets the property rates.

The $3,000 cap

Losses net against gains first. When losses win, section 1211 lets an individual deduct the excess against other income up to $3,000 a year, or $1,500 for a married person filing a separate return [4]. Topic 409 says the same and adds that the rest carries forward to later years [3].

Here’s the problem for a holder with a dead bag. A five-figure loss on a rugged coin is not a five-figure deduction this year. It is $3,000 a year against ordinary income, plus whatever gains it can absorb, and the remainder waits [3] [4]. The cap is old, it is not indexed, and it applies to property of every kind.

That is also why the timing of a gain matters. A loss carried forward is only useful in a year that has income or gains to set it against. The rules don’t care what the token was called or what the Telegram promised. They care about the date, the proceeds, and the basis.

Where the 1099-DA fits

The broker form does not decide any of this. It reports what the broker saw. Box 1f carries proceeds reduced by the transaction costs of the sale [5]. Box 6 is where a broker says whether the gain or loss is short-term or long-term under section 1222, and a broker that checks box 9, the noncovered flag, does not have to fill it [5].

When the broker cannot tell the holding period, the instructions give the sale code Y, which means the broker could not decide between box H and box K on Form 8949 [5]. That decision goes back to the holder. On Form 8949, a 1099-DA sale with no basis reported goes under box H for short-term or box K for long-term, with the basis typed into column (e) [6].

The 1099-DA guide walks every box. The Coinbase field note shows what a first broker form looked like with the basis left blank.

The receipt

Property, so gains and losses. One year, so two buckets. Taxable income, so the rate.

Then the cap: $3,000 a year on net losses against ordinary income, with the rest carried forward. And a broker form that reports proceeds and, for now, leaves the holding period and the basis to the holder.

None of that is exotic. It’s the property rulebook, read off the IRS’s own page and the Code. The number the rules can’t supply is the basis. A loss you can’t document is a loss you can’t deduct.