Stablecoins are taxed as property, just like other crypto
Stablecoins are cryptocurrencies like DAI, USDT (Tether), and USDC that are pegged to a fiat currency like USD. Even though stablecoins often equal the value of the U.S. dollar, they are still treated as property by the IRS because they are cryptocurrency assets.
That means that sales or exchanges of stablecoins must be reported on on your taxes — even if you had no gain or loss.
Will you pay taxes on stablecoins?
For the most part: no.
However, there are instances where you can have a capital gain or loss as a stablecoin's price can fluctuate slightly. If you are trading large amounts of stablecoins, these slight fluctuations can result in a tangible capital gain or loss.
The price of DAI is $1. You buy 50,000 DAI for $50,000 USD.
Later, you sell your DAI when the price of DAI is $1.02. Thus, you sell 50,000 DAI for $51,000 USD. You will have a capital gain of $1,000, and these capital gains are taxed.
Such taxation only occurs in the somewhat unusual event that a stablecoin fluctuates in value, and the capital gains are only significant when you are trading large volumes of stablecoins. Keep in mind that you need to report these capital gains (or losses) no matter how small they are.
Stablecoins and DeFi
Stablecoins are commonly used in Decentralized Finance (DeFi) applications. To understand how your stablecoins may be taxed in this case, read our guide on DeFi crypto taxes.