Is Transferring Crypto Between Wallets Taxable? (2025 IRS Rules)
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Transferring crypto between your wallets is typically not taxable since it doesn't constitute a disposal, and the cost basis and holding period remain unchanged. Accurate record-keeping is crucial to avoid any potential tax issues.
Crypto-to-crypto transactions are subject to capital gains tax in the US, similar to stocks and other assets. The tax rate depends on the holding period and the taxpayer's income bracket.
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Capital gain taxes in crypto explained
The US treats crypto as property and subjects it to income and/or capital gains tax like stocks or other assets, with favorable rates for long-term gains on assets held for longer than a year. The amount US-based taxpayers will pay depends on how long they held assets before selling and their income.
Short-term capital gains rates in the US range from 10-37%, and long-term rates range from 0-20% depending on your income bracket. Crypto earned from mining, staking, aidrops, or as payment for goods and services is subject to ordinary income tax rates.
International taxpayers can find further details about regions around the world in our helpful country tax guides.
Is sending crypto to another wallet taxable?
Is transferring crypto a taxable event? As a rule: no. Transferring crypto between your own wallets is not subject to taxation. A wallet-to-wallet transfer does not fall under the category of a disposal, as you retain ownership of the cryptocurrency throughout the process.
In addition, your cost basis and holding period do not change when you do a wallet-to-wallet transfer. Your cost basis will be your original cost for acquiring your cryptocurrency. Your holding period begins from when you acquired your coins.
That noted, it’s critical to keep accurate records of your transactions to avoid potential tax complications.
Deduct your crypto taxes with transfer fees
In certain circumstances, crypto fees can be included in your cost basis, potentially leading to reduced capital gains tax. Typically, taxpayers have the option to apply expenses to the cost basis of the property if a given transaction satisfies one of the following conditions:
The transaction is an essential component of buying or selling the property.
It enhances the underlying value of the property.
The IRS has not provided specific guidance on whether fees associated with wallet-to-wallet transfers meet these conditions. As such, there are different approaches to reporting fees for such transfers, depending on your risk tolerance.
The aggressive approach uses transfer fees to increase your cost basis, especially if the wallet-to-wallet transfer grants you access to different crypto-assets. This is based on the notion that such transfers are necessary for the buying or selling of the property.
Alternatively, the conservative approach suggests treating all wallet-to-wallet transfers as non-deductible since they are not directly linked to the purchase or sale of your cryptocurrency.
We typically recommend a conservative approach when it comes to crypto taxes. When in doubt, our crypto tax experts are available to help.
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Why crypto-to-crypto transactions are considered taxable
Is converting one crypto to another a taxable event? Yes. Here’s why: when you convert one cryptocurrency to another, such as using Bitcoin to purchase Ethereum, the process technically requires you to sell your Bitcoin in order to acquire a new asset.
As this qualifies as a sale, the IRS considers it taxable as a disposal and US taxpayers will need to report and pay crypto taxes accordingly. If you sold your Bitcoin at a higher price than what you initially paid for it, you will be liable to pay taxes on the capital gains.
Why wallet-to-wallet transfers can cause tax issues
Although wallet-to-wallet transfers are generally not subject to taxation, they can give rise to tax complications in particular cases.
Wallet-to-wallet transfer issue example
Thomas acquires $1,000 worth of ETH from Coinbase. He then transfers this ETH to a cold wallet.
Later, Thomas sells his ETH on Binance US for $1,500. Note that Binance US does not possess information regarding the cost basis of Thomas' ETH, which he transferred from his cold wallet prior to the sale.
In this case, Thomas’ capital gains should amount to $500. However, if Thomas has not maintained accurate records of his cost basis, the entire proceeds from the sale may be deemed as a capital gain, equaling $1,500.
To avoid issues like this during tax season, it is crucial to maintain meticulous records of all crypto transactions, including the dates and times of receipt and disposal, as well as the corresponding prices at those instances.
If you require assistance in tracking the cost basis of your cryptocurrency, you can utilize crypto tax software such as TokenTax, which can generate a comprehensive tax report based on your transactions, including cost basis information, by connecting your wallets and exchanges to the platform.
How TokenTax can help
With TokenTax you can streamline your tax filing experience using specialized cryptocurrency tax software. TokenTax allows you to effortlessly import data from a wide range of crypto exchanges, blockchains, protocols, and wallets. Our powerful tools automate the process and generate comprehensive tax reports, guaranteeing precise accounting for all your crypto activities.
TokenTax enables you to conveniently upload your transactions via CSV or sync them through an API integration. So no matter how many crypto wallets you’ve used, you can be sure to file a comprehensive tax return this and every year.
Crypto wallet transfers and taxes FAQs
Why am I missing transactions on my tax return after a wallet-to-wallet transfer?
Do crypto wallets report to the IRS?
How much crypto can you send without paying taxes?
How much are crypto transfer fees?
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