The IRS distinguishes between short-term and long-term capital gains based on how long you held the cryptocurrency before selling or disposing of it.
Short-term capital gains apply to assets held for one year or less and are taxed at your regular income tax rate. Long-term capital gains apply to assets held for more than one year and are taxed at preferential rates—typically 0%, 15%, or 20% depending on your total taxable income.
Knowing this distinction can significantly impact your tax liability. For example, waiting just one more day to meet the one-year threshold can reduce the tax rate on your gain. Strategic planning around when to sell or exchange your crypto can help minimize taxes and maximize after-tax returns.
Be sure to maintain clear records of acquisition and sale dates, cost basis, and sale proceeds to accurately determine your capital gains classification.
Read also: The Ultimate Crypto Tax Guide
