Crypto Capital Gains, Explained Simply

“Capital gains” sounds like jargon, but the idea is simple: it is the profit you make when you sell something for more than you paid. With crypto, understanding this one concept explains most of your tax bill.

The basic formula

Capital gain = what you sold it for minus what you paid for it (your cost basis). Buy Ethereum for $2,000, sell for $3,200, and you have a $1,200 capital gain. Sell it for $1,500 instead, and you have a $500 capital loss.

What counts as “selling”

This trips people up. A taxable disposal is not just cashing out to dollars. It includes:

• Selling crypto for fiat currency
• Trading one crypto for another (BTC → ETH is taxable)
• Spending crypto on goods or services

Simply buying and holding is not a taxable event. Neither is moving coins between your own wallets.

Short-term vs. long-term (US)

In the US, how long you held the crypto before selling changes the tax rate dramatically:

• Short-term (held one year or less): taxed at your ordinary income rate — up to 37%.
• Long-term (held more than one year): taxed at preferential rates of 0%, 15%, or 20% depending on income.

Canada is different

Canada has no short-term vs. long-term distinction. Instead, 50% of any capital gain is taxable regardless of how long you held it, added to your income at your marginal rate.

Cost basis: the number people lose

Your cost basis is what you originally paid, including fees. If you bought the same coin at different times and prices, you need a consistent method to track which units you sold. Poor cost-basis records are the number one reason crypto tax becomes a nightmare — start tracking from your first transaction.

Losses are useful

Capital losses offset capital gains. If you have $5,000 of gains and $2,000 of losses, you are taxed on $3,000 net. In the US, excess losses can even offset a limited amount of ordinary income and carry forward to future years.

Bottom line

Capital gains tax is just tax on profit when you dispose of crypto. Track your cost basis from day one, mind the US one-year rule, and remember crypto-to-crypto trades count. The calculator below applies these rules for both countries automatically.