Do you pay tax on crypto if you do not sell?

In the United States, buying crypto and holding it does not create a tax bill. Tax arises when you dispose of crypto or receive it as income, and several common actions count as one or the other even though nothing is sold for dollars.

Is holding crypto taxable?

No. The Internal Revenue Service (IRS) treats crypto as property, and property is generally taxed when it changes hands, not while it sits in a wallet. A price rise on paper, known as an unrealized gain, is not taxed until the crypto is sold, exchanged or spent.

The IRS also says these are not taxable events:

• buying crypto with dollars
• moving crypto between wallets or accounts that you own
• receiving crypto as a genuine gift, although tax can apply when the recipient later disposes of it

What can be taxed even though you did not sell for cash?

The IRS counts several things besides a cash sale:

• Swapping. Exchanging one cryptocurrency for another, including into a stablecoin, is a disposal of the first coin. The gain or loss is measured in dollars at the time of the swap.
• Spending. Paying for goods or services with crypto is also a disposal.
• Rewards. Coins received from mining or staking are ordinary income at their dollar value when the holder gains control of them.
• Airdrops. New coins received in an airdrop after a hard fork are income once the holder can use them.
• Pay. Crypto received as wages or for services is income, just as dollars would be.

In each case the tax is worked out in dollars, so a person can owe tax without having received any. That is a common complaint about the system.

What is the digital asset question on Form 1040?

On Form 1040, the main individual tax return, every filer must check yes or no to a question about digital assets. It asks whether, at any time during the tax year, the filer received a digital asset as a reward, award or payment, or sold, exchanged or otherwise disposed of one.

According to the IRS, the answer can be no for someone who only held crypto, only bought it with real currency, or only moved it between their own wallets. A swap, a purchase paid for in crypto or a staking reward means the answer is yes. The details then go on the tax forms that report gains and income.

Is it the same in other countries?

Often, but not always. The UK also treats swapping and spending tokens as disposals, as the guide to UK crypto tax explains.

Tax rules differ by country and state, and they change. Check the tax authority or a qualified tax professional for your own situation.