Cryptocurrency is treated as property for federal tax purposes in the United States. This means that the tax treatment of cryptocurrency transactions is similar to that of other property, such as stocks, bonds, or real estate.
When a taxpayer sells or exchanges cryptocurrency, they must calculate their capital gains or losses by subtracting the cost basis (the original purchase price, including any fees) from the sale price. If the resulting amount is a gain, it is subject to capital gains tax at either the short-term or long-term capital gains tax rate, depending on how long the individual held the cryptocurrency before selling it. If the resulting amount is a loss, it can be used to offset capital gains in the same tax year, and any excess loss can be carried over to future tax years.
The tax treatment of cryptocurrency differs from other types of property in a few key ways. One difference is that cryptocurrency is considered intangible property, which means that it is not physical in nature. This can make it more difficult to determine the cost basis for cryptocurrency transactions, especially for individuals who have made multiple purchases over time.
Another difference is that cryptocurrency can be easily traded on exchanges or through peer-to-peer transactions, which can make it easier to buy and sell quickly. This can lead to more frequent transactions and a higher number of taxable events compared to other types of property.
Overall, the tax treatment of cryptocurrency is similar to other types of property, but there are some unique considerations to keep in mind due to the intangible nature of cryptocurrency and its ease of trading.