Is transferring crypto between wallets taxable?

Wondering whether you need to pay taxes on your wallet-to-wallet transfers? 

Most crypto investors have transferred their coins across different wallets and exchanges. Unfortunately, these types of transfers can lead to tax reporting issues in certain situations. 

In this guide, we’ll break down everything you need to know about the tax consequences of wallet-to-wallet transfers (and share an easy way to avoid tax issues down the road). 

How is cryptocurrency taxed? 

Cryptocurrency is subject to capital gains and ordinary income tax. 

For more information, check out our complete guide to how cryptocurrency is taxed. 

Is moving cryptocurrency between different wallets taxable? 

Moving cryptocurrency between wallets that you own is not taxable. 

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 will be whenever you first acquired your coins. 

Still, it’s important to remember that moving your cryptocurrency between different wallets can lead to future tax issues if you haven’t kept accurate records of your transactions (more on this later). 

Are crypto transfer fees tax deductible? 

Cryptocurrency fees can be added to your cost basis in some circumstances, which can reduce your capital gains tax.

Typically, you can apply expenses to the cost basis of the property if your transaction meets one of the following conditions. 

1. It is a necessary part of buying or selling the property. 
2. It increases the underlying value of the property. 

The IRS hasn’t specified whether fees for wallet-to-wallet transfers meet these conditions.  As a result, there are different approaches you can take to reporting fees for wallet-to-wallet transfers depending on your risk appetite. 

The aggressive approach is to use transfer fees to increase your cost basis if your wallet-to-wallet transfer gives you access to different crypto-assets. 

The conservative approach is to treat all wallet-to-wallet transfers as non-deductible since they are not directly related to buying/selling your crypto. 
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Are crypto-to-crypto transactions taxable? 

Moving your cryptocurrency between wallets should not be confused with crypto-to-crypto transactions, where one cryptocurrency is traded for another. Unlike wallet-to-wallet transfers, crypto-to-crypto transactions are considered taxable. 

Because you are disposing of cryptocurrency in a crypto-to-crypto trade, you will incur a capital gain or loss depending on how the value of your coins has changed since you originally received them. 

Why wallet-to-wallet transfers can cause tax issues 

While wallet-to-wallet transfers aren’t taxable, they can cause tax issues in certain situations. 

Consider the following scenario. 

In this case, David’s capital gain should be $5,000. However, if David hasn’t kept accurate records on his cost basis, it’s likely that the entire proceeds of his sale will be considered a capital gain — in this case, $15,000. 

If you need help tracking the cost basis of your cryptocurrency, crypto tax software like CoinLedger can help. The platform’s historical price engine can help you find the original price of your crypto at the time of acquisition. 

How CoinLedger can help 

Looking to file your crypto taxes? Try CoinLedger, the platform that makes crypto tax reporting stress-free. 

CoinLedger serves more than 300,000 crypto investors across the globe. With integrations with hundreds of exchanges and blockchains, the platform makes tax reporting easier than ever. 

‍Get started with a free CoinLedger account today.