> For the complete documentation index, see [llms.txt](https://docs.recap.io/us-tax-guide-for-individuals/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.recap.io/us-tax-guide-for-individuals/cryptocurrency-tax/which-taxes-apply/capital-gains-tax-cgt.md).

# Capital Gains Tax (CGT)

![](https://3578954321-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FPxQfv0DcOQOVwZp3E7YI%2Fuploads%2FA0sbH0VcuxM61DxnZYfZ%2FCapital-Gains-Tax-US-Guide.png?alt=media\&token=d7fd5d67-425a-441d-af5b-e2e32302f3c6)

The IRS treats cryptocurrency as property for [federal tax purposes](https://www.irs.gov/pub/irs-drop/n-14-21.pdf). Therefore general tax principles that are applicable to property transactions must be applied to [crypto transactions](https://www.irs.gov/pub/irs-drop/n-14-21.pdf).

When you dispose of a cryptocurrency that was held as a capital asset (by selling, trading, or paying for a service or item) you are [subject to capital gains or losses](https://www.irs.gov/pub/irs-drop/n-14-21.pdf).

{% hint style="info" %}
**Some of these dispositions include:**   

* [Selling cryptocurrency for a fiat currency (USD, GBP, EUR, etc.)](/us-tax-guide-for-individuals/transaction-types/selling-crypto-for-fiat.md)
* [Purchasing goods or services with cryptocurrency](/us-tax-guide-for-individuals/transaction-types/purchases-using-crypto.md)
* [Exchanging one cryptocurrency for another (BTC to ETH, ETH to DOGE, DOGE to SHIB, etc.)](/us-tax-guide-for-individuals/transaction-types/exchanging-one-crypto-for-a-different-crypto.md)
  {% endhint %}

**A good rule of thumb is that if cryptocurrency is leaving your possession, it likely is a capital event and you will experience a capital gain or loss.**

If purchased crypto increases in value, profits generated from its disposal are treated as a capital gain; if it decreases, the loss on disposal can be deducted against other capital gains [including non-cryptocurrency capital gains](https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions).

{% hint style="success" %}

### Sales Proceeds – Cost basis = Gain or Loss

{% endhint %}

Depending upon how long you held the cryptocurrency before disposition, you may be subject to a different tax rate. Cryptocurrency held for less than a year when disposed of is considered a [short term gain or loss](/us-tax-guide-for-individuals/cryptocurrency-tax/capital-gains-tax.md#short-term-capital-gains), and is taxed as ordinary income under US law. Cryptocurrency held for over a year when it is disposed of is considered a [long term capital gain or loss](/us-tax-guide-for-individuals/cryptocurrency-tax/capital-gains-tax.md#long-term-capital-gains), and is typically taxed at a lower rate than ordinary income.

{% hint style="info" %}
Capital gains and losses are reported on [IRS Form 8949: Sales and other Dispositions of Capital Assets](https://www.irs.gov/pub/irs-pdf/f8949.pdf). This form will list:

* Description and volume of the cryptocurrency
* The date you acquired the cryptocurrency
* The date you sold or otherwise disposed of the cryptocurrency
* The proceeds (or loss) from the disposition
* The cost basis of the cryptocurrency (usually this is the cost of the cryptocurrency when it was purchased)
* The capital gain or loss from disposing of the cryptocurrency
  {% endhint %}

Capital gains seem simple to establish, but for those who trade often, it can be tedious and time-consuming – this is where [Recap](https://recap.io) can help. Users connect their exchange accounts or upload CSV data to the app. Once all the user’s data has been collected in the app, they can generate a tax report for the desired tax year.

In-depth guidance on Capital Gains Tax:

{% content-ref url="/pages/XqdbCf5wUWnLWTqpVODy" %}
[Capital Gains Tax](/us-tax-guide-for-individuals/cryptocurrency-tax/capital-gains-tax.md)
{% endcontent-ref %}