Cryptocurrency Tax Law Changes: What You Need to Know

Update on Tax Treatment of Digital Assets

Key Changes for Investors

Effective January 1, 2024, significant changes to the taxation of cryptocurrency will come into effect. The Internal Revenue Service (IRS) has recently issued new guidance that clarifies how cryptocurrency is treated as a capital asset, and how this affects the tax liability of investors. Here's what you need to know to stay compliant with the upcoming regulations:

Short-Term Capital Gains Tax: If you sell cryptocurrency within one year of acquiring it, you will be subject to the short-term capital gains tax rate. This rate is determined by your ordinary income tax bracket.

Long-Term Capital Gains Tax: If you hold cryptocurrency for more than one year before selling, your gains will be taxed at the long-term capital gains tax rate. This rate is typically lower than the short-term rate, providing a tax incentive for long-term investment.

Exception for Wash Sales: The IRS has also introduced a "wash sale" rule for cryptocurrency. If you sell cryptocurrency at a loss and then repurchase the same or a "substantially identical" cryptocurrency within 30 days, the loss will be disallowed for tax purposes.

To help taxpayers navigate these new regulations, the IRS has created a free tool that allows individuals to estimate their crypto tax liability.