How to Reduce Your Crypto Taxes (Legally)

You can't avoid crypto taxes, but you can legally reduce them. The biggest levers are simple: hold longer, harvest your losses, pick the right cost-basis method, and time when income and gains land. Here's how each works in 2026.

All of these strategies start from the same foundation: in the US, crypto is property. You owe capital gains tax when you dispose of it (sell, swap, or spend) and ordinary income tax on crypto you earn. If that framing is new, read how cryptocurrency is taxed first — the strategies below all build on it.

1. Hold for more than a year

This is the single largest lever for most people. Crypto held one year or less before you sell is taxed at short-term rates — the same as your ordinary income, which can reach 37% federally. Crypto held more than a year qualifies for long-term capital gains rates of 0%, 15%, or 20% depending on your taxable income.

The difference is dramatic. On a large gain, crossing the one-year mark can cut your federal rate by more than half. Before you sell, it's always worth checking the acquisition date of the specific lot you're disposing of.

2. Harvest your losses

Tax-loss harvesting means selling positions that are underwater to realize a capital loss, which offsets your capital gains. If your losses exceed your gains, you can deduct up to $3,000 of net capital loss against ordinary income each year and carry the rest forward to future years indefinitely.

A quirk that works in crypto's favor: the wash-sale rule — which blocks a loss deduction if you rebuy the same security within 30 days — applies to stocks and securities, not to property like crypto under current rules. That has historically let investors sell a coin at a loss and repurchase it quickly. Congress has repeatedly proposed closing this gap, so treat it as a moving target and confirm the current-year rules before relying on it.

3. Choose the right cost-basis method

When you sell part of a holding you bought at different prices, your cost basis determines your gain. The IRS default is FIFO (first-in, first-out), but if you can specifically identify which lots you're selling, you can choose higher-basis lots to shrink the gain (or lower-basis lots when you want to realize gains in a low-income year).

Two important 2025+ changes to keep in mind:

• Per-wallet cost basis. Basis is now tracked per wallet or account rather than pooled across everything, so specific identification has to be done account by account.
• Form 1099-DA. Brokers began issuing this crypto-specific form for the 2025 tax year, meaning the IRS receives gross proceeds (and increasingly basis) directly. Your reporting needs to reconcile with it.

4. Time income into low-income years

Because long-term rates depend on your total taxable income, a year when your income dips — a sabbatical, a startup year, early retirement — can be a chance to realize gains at the 0% or 15% bracket. The same logic applies in reverse: defer optional disposals out of a high-income year when you can.

5. Mind how earned crypto is taxed

Staking rewards, airdrops, and mining are ordinary income at fair market value when you receive them — you can't harvest that away. But that value becomes your cost basis, so tracking it precisely prevents you from overpaying later when you sell. See how staking rewards are taxed for the two-step mechanics.

6. Gifting and charitable donations

• Gifts: You can gift crypto up to the annual exclusion amount per recipient without gift-tax consequences. The recipient generally inherits your cost basis and holding period.
• Donations: Donating appreciated crypto held more than a year to a qualified charity can let you deduct the full fair market value and skip the capital gains tax entirely — often the most tax-efficient way to give.

Strategy at a glance

Every one of these depends on clean records — accurate acquisition dates, cost basis per wallet, and per-lot detail. If your history is scattered across exchanges and on-chain wallets, that's usually the hard part. Our Coinbase tax documents guide and the tax strategy hub go deeper on getting your data organized.

This article is general information, not tax advice. Consult a qualified professional about your specific situation.