・9 min read・Crypto
Do you have to pay crypto taxes if you reinvest?
Do you have to pay taxes on crypto if you reinvest? Learn about tax rules and implications for reinvesting, trading, and reporting your crypto activities.
Since crypto is a relatively new asset class, many investors aren’t sure what counts as a taxable event. One common question is: Do you have to pay crypto taxes if you reinvest rather than cashing out? Although the answer depends on the transaction’s specifics, reinvesting will typically trigger capital gains tax just like trading crypto for fiat.
There are nuances to how the IRS treats reinvesting crypto, so you’ll need to carefully record every transaction and understand the latest rules. In this article, you’ll learn about the tax implications of crypto reinvestments so you can stay compliant and better estimate your tax liability.
How crypto reinvesting affects taxes
When you reinvest crypto, you exchange digital assets for another, rather than selling them for fiat currency like USD. But you still pay taxes on crypto if you reinvest. The IRS treats reinvesting the same as disposing crypto for cash – both are taxable crypto events and may be subject to capital gains tax.
If the crypto’s fair market value (FMV) at time of disposal is higher than its cost basis, you’ll owe tax on the gains. The rate you pay depends on your taxable income, filing status and how long you held the asset.
How to calculate taxable crypto gains
Let’s look at how reinvesting impacts your crypto taxes:
- You purchased 0.5 Bitcoin (BTC) for $45,000
- After one year, you sold that BTC to invest in Ethereum (ETH)
- At the time of the sale, the FMV of 0.5 BTC was $50,000
- The taxable gain for this transaction equals the FMV of the BTC minus its cost basis
- You subtract $45,000 (cost basis) from $50,000 (FMV), resulting in a taxable gain of $5,000
How holding periods affect crypto tax rates
The rate the IRS applies to a capital gain depends on three factors: How long you held the crypto asset, filing status and your taxable income.
If you held the crypto for over a year, you qualify for one of three fixed – and often more favorable – long-term capital gains rates. When you sell crypto held for less than 12 months, you'll pay short-term capital gains at ordinary income tax rates.
| Category | Short-term capital gains | Long-term capital gains |
|---|---|---|
| Holding period | Held for one year or less | Held for over one year |
| How it’s taxed | Taxed as ordinary income | Taxed at preferential capital gains rates |
| Tax rate range depending on taxable income and filing status | 10–37% | 0%, 15%, or 20% |
Ways to reinvest crypto (and their tax implications)
You can use crypto to buy many different assets, but each separate transaction counts as a taxable event. Take care to record all the details of each reinvestment – here are a few examples.
Swapping one crypto for another
The most straightforward way to reinvest is to exchange one crypto for another on a crypto exchange. Many platforms offer direct crypto-to-crypto trading pairs, making it easy to swap digital assets at the current market rate. After the transaction goes through, you’ll use the FMV and cost basis to calculate your taxable gain.
Stablecoins like USDC are also subject to capital gains tax. Even though stablecoins maintain roughly a 1:1 peg with a fiat currency, any exchange between two stablecoins or a stablecoin and another digital asset counts as a disposal, and even minimal differences in cost basis can result in capital gains or losses.
Using cryptocurrency to buy NFTs
Non-fungible tokens (NFTs) hold unique metadata that could represent anything from virtual real estate to digital art. Since most NFT marketplaces use cryptocurrencies like ETH or Solana (SOL) to process transactions, using crypto to buy an NFT (or vice versa) is a disposal and follows the same capital gains tax rules.
For example, if you used one ETH with a cost basis of $3,000 to purchase an NFT, and ETH’s FMV was $4,000 at time of the transaction, the taxable gain is $1,000.
Staking rewards
Blockchains that use a proof-of-stake (PoS) model let you earn staking rewards for contributing to the network’s consensus algorithm. When you receive staking rewards in your crypto wallet or exchange account, the IRS treats this income as taxable ordinary income based on the FMV at the time of receipt.
However, if you reinvest your staking rewards by exchanging them for another asset, the FMV at the time you received the rewards becomes your cost basis, and any gains trigger crypto capital gains tax.
Reinvesting between different asset classes
With more brokerage apps offering multi-asset services, it’s become easier to trade between crypto and traditional investments like stocks. Using crypto to purchase another investment counts as a disposal and is subject to capital gains tax.
The exception is when an investor uses a tax-advantaged retirement vehicle, like a self-directed IRA, to reinvest crypto in another asset category. In this case, taxes may be deferred or eliminated depending on the account type, but the specifics depend on the account's rules.
How to report cryptocurrency reinvestments
You’ll need detailed records on every transaction to fill out the proper forms and report your taxable gains or deductible losses accurately. Here’s how you’ll pay taxes on crypto gains.
Keep thorough records
Since every crypto reinvestment counts as a taxable disposal, compile these details for every transaction:
- Date and time of transaction
- Type of cryptocurrency exchanged
- Proceeds (FMV in USD at time of transaction)
- Cost basis for the cryptocurrency reinvested
- Capital gain or loss
- Transaction fees
- Wallet address or exchange name where the transaction took place
- Exchange account transaction history
- Blockchain transaction hash and timestamp (if available)
That’s a lot to record, but you can do this easily with CoinTracker’s Portfolio Tracker, which connects to all your exchange APIs and crypto wallets for seamless reporting.
Fill out IRS forms
IRS Form 8949 is the primary form for reporting cryptocurrency disposals, including reinvestment activities. List each transaction separately, and include the dates, proceeds, cost basis, and gains or losses.
Distinguish between short-term and long-term capital gains, and include a description of each crypto disposed of (e.g., “1 BTC” or “10 ETH”). Then transfer the final totals from Form 8949 to the appropriate lines on Schedule D.
Take control of your crypto taxes with CoinTracker
For tax purposes, there’s no difference between cashing out and reinvesting your crypto – both actions count as taxable events that may result in capital gains or losses. You’ll need to document the cost basis and proceeds (FMV) for each reinvestment, then compile all that information on IRS Form 8949 and Schedule D.
Tax time is here – are you prepared? Let us simplify your crypto tax journey. Create a free CoinTracker account and let our platform handle the complexities.
Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.
FAQ
Do you have to pay taxes when you reinvest crypto profits?
The IRS treats crypto reinvestments the same as taxable disposals. Both are subject to capital gains tax if the FMV at the time of the transaction is higher than your cost basis.
Is swapping crypto a taxable event even if you don’t cash out?
When it comes to taxes, trading one cryptocurrency for another digital asset is the same as “cashing out” that crypto for a fiat currency. Both count as disposals, and the IRS treats any profits as capital gains.
How does the IRS know about crypto reinvestment transactions?
Starting with the 2025 tax year, the IRS receives information on crypto transactions through IRS 1099-DA forms, primarily from custodial platforms such as centralized exchanges. It’s important to record every crypto activity carefully and report the details accurately on your tax forms.
Can you reinvest crypto without paying taxes by using an IRA?
The main way to reinvest crypto without triggering an immediate tax is to use self-directed IRAs. These accounts also offer potential tax benefits on contributions, but review the rules for a particular IRA before making any transactions.