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Crypto Law/Level II · Tax: the first trap/2.3 Records and reporting/Lesson 2

Short-term and long-term gains

In US tax, one day past a year can change the rate on a crypto gain from ordinary income rates to the lower long-term rates.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Wait at least a year and a day: Publication 544 counts from the day after acquisition, and section 1222 makes gain on property held more than one year long-term.
  2. In 2026 long-term gains are taxed at 0% up to $49,450 taxable income single or $98,900 joint; with the $16,100 or $32,200 standard deduction, total income up to $65,550 or $131,100 stays in that band.
  3. In a low-income year, sell long-term coins within the 0% band and buy back to raise basis; the wash-sale rule does not touch gains, but the repurchased coins start a new holding period.
  4. Spread sales across years to stay under the unindexed 3.8% net investment income tax thresholds ($200,000 single, $250,000 joint); NFTs treated as collectibles can face a 28% maximum rate.
  5. German residents: private crypto sales after more than one year are untaxed under §23 EStG, and yearly private-sale gains under €1,000 are exempt; US citizens stay taxable by the US wherever they live.

MaterialsIRS Publication 544, the section on holding periods (counting starts the day after you acquire)Rev. Proc. 2025-32, section 4.03, with the 2026 thresholds for the 0%, 15% and 20% long-term ratesYour own lot list from lesson 2.3.1, with the acquisition date of each lot

Wonder

  1. How long do I have to hold a coin before the gain counts as long-term?
  2. Is a long-term gain on crypto always taxed at 15%?
  3. Does trading one coin for another restart the clock?

Explore

  1. US federal tax splits capital gains by holding period. Under 26 U.S.C. §1222, a gain on a capital asset held for not more than one year is short-term, and a gain on an asset held for more than one year is long-term. The IRS applies the same split to digital assets held as capital assets (Virtual Currency FAQ 6). A capital asset here simply means property held for investment or personal use rather than as stock in a business. Losses are split the same way, and the two kinds are netted against each other on Schedule D, which is why the date on every lot matters (lesson 2.3.1).
  2. Counting is precise. IRS Publication 544 says to start counting on the day after you acquired the property, and the day you dispose of it counts. Its example: an asset bought on 17 June 2024 and sold on 17 June 2025 has not been held longer than one year; sold on 19 June 2025, it has. Each lot has its own clock, so selling part of a holding can produce both kinds of gain. A swap of one coin for another is a disposal (lesson 2.1.3), so the coin you receive starts a new holding period with a new basis.
  3. Net short-term gains are taxed at ordinary income rates, the same brackets as wages. After the 2025 law commonly called the One Big Beautiful Bill Act (Pub. L. 119-21) made the 2018 brackets permanent, those rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%. Net long-term gains on most assets are taxed at 0%, 15% or 20%, depending on total taxable income. For 2026, Rev. Proc. 2025-32 sets the top of the 0% band at $49,450 for single filers and $98,900 for married couples filing jointly, and the top of the 15% band at $545,500 and $613,700. These figures are adjusted for inflation each year.
  4. Two add-ons can raise the rate. The net investment income tax in 26 U.S.C. §1411 adds 3.8% on investment income, including capital gains, for individuals whose modified adjusted gross income exceeds $200,000, or $250,000 for joint filers; those thresholds are written into the statute and are not indexed. Separately, gain on collectibles held long-term can be taxed at up to 28%. In Notice 2023-27 the IRS said it intends to treat some NFTs as collectibles, using a look-through test to the asset or right the NFT represents, and asked for comments (lesson 1.2.6).
  5. Some acquisitions carry special holding periods. For a gift where you take the giver’s basis, your holding period includes the giver’s; inherited property has its own rules (lesson 2.1.5). Income events are different again: staking rewards or mining income are taxed as ordinary income when received (lessons 2.2.1 and 2.2.2), and only later price changes become capital gain or loss, with a holding period starting the day after receipt. State income taxes follow their own rules, and other countries draw the line differently or not at all, so the one-year rule is a US federal rule only.
  6. A practical check: take your lot list and mark the date on which each lot crosses one year and a day. Then look at your realized gains for the current year and see how many came from lots held a year or less. This lesson explains how the rate is decided; it does not suggest holding or selling on a schedule. Price risk while waiting can outweigh a rate difference, and the right comparison depends on your bracket, state tax and other gains or losses (lesson 2.3.3), which a qualified tax adviser can review.

Key facts

  • Under 26 U.S.C. §1222, a capital gain is long-term only if the asset was held for more than one year.
  • IRS Publication 544 says the holding period starts on the day after acquisition and includes the day of disposal.
  • For 2026, Rev. Proc. 2025-32 sets the top of the 0% long-term capital gains band at $49,450 for single filers and $98,900 for joint filers.
  • For 2026, the 15% long-term band ends at $545,500 for single filers and $613,700 for joint filers, above which the 20% rate applies.
  • The 3.8% net investment income tax under 26 U.S.C. §1411 applies above modified adjusted gross income of $200,000 for single filers and $250,000 for joint filers.
  • In Notice 2023-27 the IRS said it intends to treat certain NFTs as collectibles using a look-through analysis, which can mean a 28% maximum long-term rate.

Exercise nine, six, three, one

9CollectList up to 9 crypto disposals you made or have studied in one year, with the acquisition date, the disposal date and the gain or loss for each.
6ClusterSort them into 6 categories: short-term gains, short-term losses, long-term gains, long-term losses, disposals that were swaps into another coin, and disposals whose acquisition date you cannot confirm.
3DistillReduce the 6 categories to 3 groups: taxed at ordinary rates, taxed at long-term rates, and needing records before the rate can be known.
1CrystallizeWrite 1 sentence explaining, in your own words, why a swap from one coin into another resets the holding period.

Fact check

Dates, figures and claims checked against the published sources listed below.

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