Why do cryptocurrency traders obsess over that magical one-year holding period?
The answer lies in the dramatic tax implications that kick in the moment your crypto investment crosses that 365-day threshold.
In the eyes of the IRS, cryptocurrencies are property, not currency—a distinction that places every sale, swap, or purchase using crypto under the capital gains microscope.
When you dispose of cryptocurrency held for one year or less, you’ve entered short-term capital gains territory.
The moment you sell crypto before its first birthday, the IRS slaps you with short-term capital gains—the tax equivalent of buying high and selling low.
Think of these gains as the overachieving younger sibling that gets taxed at the same rates as your regular income—anywhere from 10% to a wallet-wincing 37%.
That Bitcoin you flipped after seven exciting months? Uncle Sam wants his cut at your full income tax rate, no discounts offered.
Long-term capital gains, however, are the golden child of the tax world.
Hold your crypto for more than 12 months, and you’re rewarded with preferential tax rates of 0%, 15%, or 20%, depending on your income bracket.
A single filer making under $48,750 in 2025 could potentially pay zero tax on long-term crypto gains—a tax loophole big enough to drive a Lambo through.
Those with substantial investment income should be aware that an additional Net Investment Income Tax of 3.8% may apply to gains if your income exceeds certain thresholds.
Calculating these gains isn’t rocket science, but it does require attention to detail.
Subtract your cost basis (what you paid plus fees) from your sale price.
Each transaction—even swapping one crypto for another—triggers a taxable event that needs reporting on Form 8949 and Schedule D.
The difference between short and long-term rates can be substantial.
Imagine selling $10,000 worth of Ethereum: at a 32% short-term rate, you’d owe $3,200, while the same sale as a long-term gain might cost just $1,500 at the 15% rate.
No wonder patience has become a virtue in crypto circles—when it comes to capital gains, sometimes the most profitable move is simply waiting for that tax clock to run out.
Maintaining proper records of your crypto transactions throughout the year will simplify your tax filing process and help ensure compliance with IRS requirements.
Remember that NFTs may be subject to different taxation rules, as they’re often classified as collectibles with a potentially higher maximum tax rate of 28%.
