Short-Term Capital Gains
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Key Takeaway
Profit earned from selling or disposing of a cryptocurrency asset held for one year or less, taxed at the same higher rate as ordinary earned income.
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What Is Short-Term Capital Gains?
Profit earned from selling or disposing of a cryptocurrency asset held for one year or less, taxed at the same higher rate as ordinary earned income.
How Short-Term Capital Gains Works
Frequently Asked Questions
What tax rate applies to short-term capital gains on crypto?
Short-term capital gains on cryptocurrency are taxed at ordinary income tax rates, which in the United States range from 10% to 37% depending on your total taxable income for the year. This is the same rate applied to wages, freelance income, and other earned income. The rate is considerably higher than the 0%, 15%, or 20% rates that apply to long-term capital gains. Because short-term rates can be substantially higher, frequent traders who sell within twelve months of purchase often face a much larger tax burden than investors who hold assets longer.
How long must I hold crypto to avoid short-term capital gains tax?
To avoid short-term capital gains tax treatment in the United States and most jurisdictions with similar frameworks, you must hold a cryptocurrency asset for more than twelve months before disposing of it. The holding period begins the day after you acquire the asset. Selling on exactly the one-year anniversary still qualifies as short-term in the US because the holding period must exceed one year — not simply equal one year. Holding beyond the one-year mark qualifies gains for lower long-term capital gains tax rates, often significantly reducing your tax liability on the same profit.
Are short-term crypto gains taxed the same as my salary?
Yes — in the United States and many other countries, short-term capital gains from cryptocurrency are added to your other income and taxed at the same ordinary income rates as your salary or wages. This means the tax rate on your crypto gains depends on your total income across all sources. If your salary already places you in a high income bracket, short-term crypto gains will be taxed at that higher rate. This is in contrast to long-term capital gains, which use a separate, lower rate schedule regardless of your other income. This connection to overall income makes tax bracket management an important consideration for active crypto traders.
Common Misconceptions About Short-Term Capital Gains
Short-term capital gains have their own special low crypto tax rate.
There is no special low tax rate for short-term crypto gains. Short-term gains are taxed as ordinary income, meaning they are subject to the same progressive tax brackets applied to wages, freelance work, and business income. Depending on total income, this can mean paying 22%, 32%, or even 37% federal tax in the US. The idea of a separate crypto tax rate for short-term gains is a misconception that leads many traders to underestimate their tax liability. Always calculate short-term gains as part of your total ordinary income for the year.
Selling crypto after 6 months means you get a reduced tax rate.
There is no tax benefit or reduced rate at the six-month mark in the United States or most comparable jurisdictions. The only relevant holding-period threshold is one full year. Assets held for twelve months or fewer are taxed at full ordinary income rates regardless of whether they were held for one day or eleven months. The long-term capital gains rate — which is lower — only becomes available after you have held the asset for more than one year. Six months provides no tax advantage over six days for capital gains purposes.
If you reinvest your short-term gains immediately into another crypto, you don't owe tax.
Reinvesting proceeds from a crypto sale does not defer or eliminate the tax obligation on that sale. The taxable event occurs at the point of disposal, regardless of what you do with the proceeds afterward. If you sell Bitcoin at a profit and immediately purchase Ethereum with the proceeds, you still owe tax on the Bitcoin gain in that tax year. This differs from some retirement account structures in traditional finance. There is currently no equivalent tax-deferred reinvestment mechanism for cryptocurrency trading outside of specific retirement-linked accounts.