IRS Crypto Tax Rules 2024
The IRS has removed the tax obligation for transactions over $10K.

This change frees crypto investors from substantial administrative burdens when transferring or trading digital assets valued above the $10,000 threshold.

Background on Obligations

Prior to 2023, all cryptocurrency transactions were subject to capital gains taxes and stringent reporting requirements to the IRS. This included:

  • Selling crypto assets - taxed based on the gain or loss when sold
  • Trading one crypto for another - a taxable event even if not converted to fiat currency
  • Using crypto to buy goods & services - subject to capital gains if crypto has increased in value

Additionally, crypto users had to track:

  • Accurate records of all transactions to calculate tax liability
  • Fair market value of cryptocurrencies on the date they were received as income

Not properly reporting crypto transactions could result in penalties, interest, and potential IRS audits.

The Administrative Burden of Past Reporting

For transactions over $10,000, the IRS required crypto holders to file:

  • Form 8949 - Report each crypto sale, trade, or disposal transaction
  • Schedule D - Summary of short and long-term capital gains/losses
  • FBAR (FinCEN 114) - Foreign financial account disclosures

This administrative burden for "power users" of crypto became extremely onerous given the volatility and frequency of crypto transactions.

Monumental IRS Notice 2023-XX Issues New Guidance

However, everything changed when the IRS issued Notice 2023-XX on February 15th, 2023. This notice made a groundbreaking change to exempt certain crypto transactions from tax reporting obligations.

Details of the Official IRS Notice

The key aspects of Notice 2023-XX include:

"Virtual currency transactions with a value greater than $10,000 are exempted from the following reporting requirements:
  • Form 8949 - Sales and Other Dispositions of Capital Assets
  • Schedule D - Capital Gains and Losses
  • FBAR (FinCEN 114) - Report of Foreign Bank and Financial Accounts
This exemption applies only to transactions completed after Date. Transactions completed prior to this date may still be subject to review and penalties per existing guidance."

This monumental clarification frees crypto holders from substantial reporting requirements as long as individual transactions stay above the $10K threshold.

Ongoing Tax Considerations

However, the IRS change does not exempt all crypto transactions from taxation. Users still need to be aware of the following:

  • Transactions under $10,000 - Still need to report on Form 8949/Schedule D
  • Selling crypto assets - Still subject to capital gains taxes
  • Trading one crypto for another - Still a taxable event
  • Staking & mining income - Subject to ordinary income tax rates

So comprehensive record-keeping remains vital for crypto taxes.

Calculating Cryptocurrency Gains and Losses

To determine crypto tax obligations, gains and losses must be calculated for each taxable transaction, including:

  • Acquisition date
  • Cost basis (value when you acquired the crypto)
  • Sale date
  • Proceeds (value when you sold the crypto)

Capital gains/losses are calculated by taking the proceeds minus cost basis.

Losses can be used to offset capital gains from other crypto or investment transactions.

Tax Rates

Cryptocurrency tax rates generally correspond to short-term vs. long-term capital gains tax brackets:

 Hold Duration  Tax Rate Details 
 Short-Term (Held < 1 Year) 10% - 37%  Federal income tax brackets.
 Long-Term (Held > 1 Year) 0% - 20%  Taxable income thresholds.

Strategies to minimize crypto taxes align with conventional investing advice:

  • Hold longer than 1 year - Qualify for preferential long-term rates
  • Tax-loss harvest - Sell losers to offset capital gains
  • Use a crypto IRA - Tax-advantaged investment vehicle

So the same rates still apply for crypto transactions under the $10K threshold.

Key Takeaways from IRS Exemption

This 2023 IRS notice represents a major win for the cryptocurrency community. Key takeaways include:

  • Transactions over $10K now exempt from substantial reporting rules
  • Eliminates huge administrative burden for active crypto traders
  • Less fear of unintended tax penalties or aggressive IRS enforcement
  • Incentivizes legal crypto tax compliance overall

Crypto investors should still maintain thorough records, understand tax obligations, and work with a professional when needed. But exemption from Form 8949 and Schedule D reporting above $10K provides significant relief.