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Is There an Unrealized Gains Tax on Cryptocurrency?

Is There an Unrealized Gains Tax on Cryptocurrency?
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Our content is designed to educate the 400,000+ crypto investors who use the CoinLedger platform. Though our articles are for informational purposes only, they are written in accordance with the latest guidelines from tax agencies around the world and reviewed by certified tax professionals before publication. Learn More

Do you have to pay taxes on your unrealized cryptocurrency gains? 

In the United States and most other countries, the answer is no. 

However, tracking your unrealized gains can be a great strategy for tax optimization. 

In this guide, we’ll break down everything you need to know about how unrealized gains are taxed. We’ll cover the difference between unrealized and realized gains, the reason why tracking your unrealized gains are so important, and a simple strategy to help you easily track all of your gains and losses. 

What are unrealized gains? 

Unrealized gains are increases in the value of assets that have yet to be sold or disposed of. 

To better understand the concept, let’s take a look at an example.

Cryptocurrency unrealized gains explained

Meanwhile, you’ll have an unrealized loss if the value of your cryptocurrency has declined.

Unrealized loss explained

How are cryptocurrency gains taxed? 

Unrealized gains vs. realized gains

In the United States, unrealized gains on cryptocurrency and other assets are not subject to tax. 

You will pay taxes when you realize your gains by disposing of your cryptocurrency. Examples of disposals include selling your crypto, trading your crypto for another crypto, and using your crypto to make a purchase. 

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

Realized vs. unrealized gains 

To better understand the difference between realized and unrealized gains, let’s take a look at an example. 

Paul buys $2,000 of ETH. 

The price of ETH rises to $2,200. 

Now, let’s imagine two different scenarios. 

Here’s what would happen if Paul decides to sell or otherwise dispose of his ETH.

How realized gains are calculated

Here’s what would happen if Paul decides to hold his ETH. 

How are unrealized gains taxed?

Will the United States implement an unrealized gains tax on cryptocurrency?

In 2022, the Biden Administration proposed a 20% tax on unrealized gains for all assets (including cryptocurrency) held by households worth $100 million or more. However, the proposal was shelved because it did not have the votes necessary to pass through Congress.

Why do I need to track my unrealized gains and losses? 

While unrealized gains and losses don’t come with a tax liability, there are multiple reasons why you may want to track them for tax purposes. 

Long-term capital gains 

By tracking the holding period and value of your cryptocurrency, you can find the optimal time to sell your assets. 

Remember, the American tax code encourages long-term investment. As a result, you’ll pay lower taxes when you wait 12 months or more to sell your crypto.

Tax-loss harvesting 

Tracking your portfolio can help you identify the best time to realize your cryptocurrency losses. 

Remember, capital losses come with tax benefits. Realized losses can offset all of your capital gains and up to $3,000 of income or the year. 

Looking for an easy way to track your biggest tax-saving opportunities? CoinLedger can help. Our Tax-Loss Harvesting Report has helped our customers save more than $50 million on their tax returns. 

How CoinLedger can help 

Looking for an easy way to track your gains, losses and income? CoinLedger can help. 

Simply connect your wallets and exchanges to CoinLedger for free and let the platform track your realized and unrealized gains and losses. More than 400,000 investors around the world use the platform to track their portfolios and calculate their taxes in minutes. 

Get started with a free account today

Frequently asked questions 

How do I avoid capital gains tax on crypto? 

Investors often use strategies like tax-loss harvesting to legally reduce their crypto tax liability. For more information, check out our guide to legally reducing your crypto tax bill

Do I need to report crypto if I didn’t sell? 

There’s no need to report your cryptocurrency on your tax return in cases where you held on to your assets and did not earn or dispose of cryptocurrency. 

Do you pay taxes on crypto losses? 

No. Crypto losses can be used to offset capital gains and reduce your tax bill. 

How do you hide crypto profits? 

There is no legal way to hide realized cryptocurrency profits. Remember, tax evasion is a serious crime with serious consequences. 

What countries tax unrealized gains on crypto? 

While the United States does not tax unrealized gains, countries like Spain and Switzerland do have wealth taxes. 

Frequently asked questions

Let’s cap things off by answering some frequently asked questions about cryptocurrency taxes.

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