The Internal Revenue Service treats cryptocurrency and other digital assets as property for tax purposes, making transactions taxable at the federal level. State approaches to taxing these gains vary widely.
Cryptocurrency is taxed similarly to other investment gains. Short-term capital gains apply to assets held for under a year and can be substantially higher than long-term gains, depending on individual tax situations. States that tax crypto gains typically apply the same rate as income.
Approximately ten states currently do not tax cryptocurrency gains. Others impose significant rates. According to BitCoin Well, six states stand out for having the highest taxation on crypto gains.
California taxes both short- and long-term gains at up to 13.3%, including an additional 1% for household incomes exceeding $1 million, as reported by Bitbo.
Hawaii taxes crypto gains at up to 11%. Count on Sheep notes that unclear tax regulations create a less desirable environment for crypto trading there.
New York also taxes both short- and long-term gains at the same rate, up to 10.9%, per Bitbo. Households earning under $1 million face a maximum rate of 6.85%.
Minnesota taxes capital gains as regular income, with rates up to 10.85%. Like California, it includes an additional 1% for household incomes over $1 million, according to Bitbo.
New Jersey taxes capital gains as regular income at up to 10.75%, with no distinction between short- and long-term gains, Bitbo states.
Oregon taxes capital gains as regular income at up to 9.9%, also with no distinction between short- and long-term gains, per Bitbo.
Maintaining detailed transaction records is essential for crypto trading in taxable accounts. Traders will receive Form 1099-DA in early 2026 to report sales proceeds. The Wall Street Journal reports that including this and all activity when filing taxes is imperative, as advanced crypto traders face higher audit risks from the IRS.
Holding assets long-term can reduce federal taxes on substantial gains. Tax-loss harvesting may offset gains. State tax variations should be considered by traders contemplating relocation.
Local regulations significantly impact how much of crypto gains investors retain. Understanding these rules is key to avoiding surprises during tax season.