Is Transferring Crypto Between Wallets Taxable? (2024 IRS Rules)

Tynisa (Ty) Gaines
ByTynisa (Ty) Gaines, EAReviewed byZac McClure, MBAUpdated on November 15, 2023 · minute read
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  • Transferring crypto between your own wallets is not taxable, as it does not constitute a disposal and the cost basis and holding period remain unchanged. However, accurate record-keeping is critical to avoid tax complications.

  • Crypto for crypto transactions are subject to capital gains tax in the US, similar to stocks and other assets, with varying rates depending on the holding period and income bracket.

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.

Schedule a FREE crypto tax consultation

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.

Frequently asked questions

Here are answers to questions about taxes on crypto transfers, is sending crypto taxable, is sending crypto to another wallet taxable, and is transferring crypto a taxable event.

Why am I missing transactions on my tax return after a wallet-to-wallet transfer?

If you’ve transferred crypto between wallets, you might encounter a "missing cost basis" error when using crypto tax software. Generally this occurs when you’ve not uploaded complete transaction records from all of your blockchains, wallets, and exchanges. Crypto tax software requires the original cost basis for all your crypto in order to calculate gains and losses.

Do crypto wallets report to the IRS? 

Crypto wallets do not report to the IRS, but the IRS can and does track cryptocurrency by collecting KYC data from centralized exchanges. The best approach is to assume the IRS and international tax agencies have full transparency into your crypto activity and to thoroughly report your crypto activity each and every year.

How much crypto can you send without paying taxes? 

If you simply send crypto from one wallet to another wallet you control, there is no limit to how much crypto you can transfer without paying taxes. 

How much are crypto transfer fees?

Crypto transfer fees vary greatly based on factors including the cryptocurrency in question, network congestion, and transaction speed used. To obtain accurate and current fee information, consult the official websites or documentation of the specific crypto and platform or wallet being used.

To stay up to date on the latest, follow TokenTax on Twitter @tokentax.

Tynisa (Ty) Gaines
Tynisa (Ty) GainesTax Expert at TokenTax
Tynisa (Ty) Gaines, EA has more than 20 years of experience as a tax professional. Ty has published numerous tax articles, two tax e-books, and an academic publication on cryptocurrency for the National Income Tax Workbook.
Zac McClure
Reviewed byZac McClureCo-Founder & CEO at TokenTax
Zac co-founded TokenTax after his career in international finance and accounting at JPMorgan, Imprint Capital and Bain. He has worked in more than half-dozen countries and received his MBA from the UPenn Wharton School.

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