crypto capital gain tax long vs short term

[mdyune]

Q1. basically crypto capital gain tax is the same principle as stock trade, right?

Q2. I am struggling with how to choose short vs long term cap gain. You purchase crypto over a long period of time some being more than a year ago, some being less. Then I can choose long term gain at my convenience as long as I have proof I bought enough crypto in long term bracket to cover the amount I am selling. Is it right? Or do I need some tax form issued from platform to support me?

THANK YOU

[Andrew_W · Accepted solution]

Hi @mdyune,

For your first question, yes, crypto sales are generally treated the same as other capital gains, and share the same tax rates (long term vs. short term holding), assuming the crypto is held for investment purposes. Long term is generally any asset sold that was held for at least one year, short term being any held for less than a year.

You do need to be able to determine the cost basis (what you paid) for the crypto assets when you sell them to determine the amount of the gain (or loss), and also the date the crypto was purchased (to determine long term or short term holding). Depending on the platform your crypto is held on, they may issue a form or statement, or you may need to rely on your own records to determine this information.

Generally, the default method for crypto sales (and other capital gains) is the First In First Out (FIFO) method. This would consider the oldest crypto being sold first. For example, if you have 10 Bitcoins, 5 purchased over a year ago and 5 in the current year, and 2 are sold before the end of the year, under FIFO any gains would be considered long-term from the oldest coins being sold first. 

There are other methods, including Last In First Out (LIFO). Generally, however, once one accounting method is chosen, you cannot switch back and forth to another without approval from the IRS, and it can be quite complex to calculate properly.