Tax Considerations When Selling Stocks or Cryptocurrency

Selling investments like stocks or cryptocurrency can trigger a variety of tax consequences—some favorable, others less so. Whether you're rebalancing your portfolio, cashing out gains, or harvesting losses, understanding how these transactions are taxed is essential to avoid surprises and minimize what you owe.

Capital Gains vs. Capital Losses

When you sell a stock or crypto asset for more than you paid, the profit is considered a capital gain. If you held the asset for:

• More than one year, it’s taxed as a long-term capital gain, usually at 0%, 15%, or 20% depending on your income.
• One year or less, it’s a short-term capital gain, taxed at your ordinary income tax rate, which can be significantly higher.

On the other hand, if you sell at a loss, that’s a capital loss—which can be used to offset gains and potentially reduce your taxable income by up to $3,000 per year if your losses exceed gains.

Cryptocurrency Is Treated Differently Than Cash

The IRS considers cryptocurrency to be property, not currency. This means every time you sell, trade, or use crypto to purchase goods or services, it’s a taxable event. Key points to remember:

• Exchanging one crypto for another is taxable.
• Using crypto to buy something triggers a gain or loss, just like selling a stock.
• Crypto received through mining, staking, or as payment for services is considered ordinary income, taxed at your marginal rate.

Tracking Cost Basis Is Critical

To calculate your gain or loss, you must know your cost basis—what you paid for the asset plus any fees. This can be straightforward with stocks held in a brokerage account but is often more complex with cryptocurrency, especially when multiple transactions are involved.

For crypto, maintaining accurate records of acquisition dates, prices, and transaction fees is essential. Many taxpayers rely on third-party tracking software or consult with a tax professional to ensure compliance.

Watch for Wash Sale Rules (and Their Limits)

The wash sale rule prevents you from claiming a loss if you repurchase the same or a “substantially identical” stock within 30 days before or after the sale. As of now, this rule does not apply to cryptocurrency, but proposed legislation may change that. Staying up to date on these developments is important if you trade frequently.

Final Thoughts

Whether you're taking profits, cutting losses, or diversifying your holdings, proper tax planning around investment sales can make a meaningful difference in your bottom line. If you're unsure how your transactions will affect your tax return—or how to plan effectively before year-end—our team is here to help.

Contact us to review your investment activity and explore tax strategies tailored to your situation.