Is swapping crypto taxable? IRS rules for 2025

Swapping one crypto for another is a taxable event, and you must calculate the USD value of your capital gain or loss to report on your taxes.

This guide explains exactly why swapping crypto is taxable, how to calculate your gains or losses, and where to report swaps on your tax return.

How crypto swaps are taxed

A cryptocurrency swap is any direct trade of one digital asset for another without first converting to U.S. dollars.

For example, you might swap Bitcoin (BTC) for Ether (ETH), or trade an NFT for a stablecoin such as USDC.

Regardless of whether you see any actual cash from the transaction, the IRS treats cryptocurrency swaps as a taxable event, meaning you must account for any gains or losses that arise from the exchange.

Therefore, you need to calculate the USD value of the profit or loss at the time you swapped the crypto you already held, for the new one.

It’s essential to remember that on-chain swaps (eg, using a decentralized exchange) are taxed the same way as swaps made on a centralized cryptocurrency exchange – although you will need to make additional calculations if gas fees were involved.

How to calculate taxes on crypto swaps

1. Determine your cost basis

Cost basis is typically the amount you paid when you acquired the crypto. This includes transaction fees. When you swap, you “sell” at fair market value. Subtract the cost basis from the sale price to find your capital gain or loss.

• Formula: Capital Gain (or Loss) = Fair Market Value (at swap) – Cost Basis

2. Determine the fair market value at the time of trade

You’ll need to determine the U.S. dollar value of the coin you disposed of. Often, this is simply the market rate of the coins or tokens you receive, converted to USD. For example, if you exchanged 1 ETH for 50 UNI, and 1 ETH was worth $2,000 at the time, then your proceeds from the swap are considered $2,000 for tax purposes.

3. Short-term vs. long-term gains

• Short-term capital gains apply if you held the disposed asset for one year or less, taxed at your regular income tax rate.
• Long-term capital gains apply if you held the disposed asset for more than one year, taxed at preferential rates (0%, 15%, or 20% for most taxpayers).

Be mindful of this distinction, especially if you’re strategically timing your swaps for more favorable tax outcomes.

3. Report on Form 8949

You’ll report each taxable event (including swaps) on Form 8949, then summarize totals on Schedule D.

Special consideration for DeFi swaps

Swaps in DeFi work the same way as on a centralized exchange.

Whether you’re using Uniswap, Raydium, or any other decentralized exchange (DEX), each token swap is a disposal.

The IRS subjects these trades to the same rules as centralized exchanges, which means you must record cost basis, fair market value, and keep track of gains or losses.

However, you also need to factor in gas fees into your taxes.

DeFi swaps and gas fees

When transacting on DeFi platforms, gas fees can add complexity.

Paying a gas fee in cryptocurrency is itself a form of disposal.

This means you might have a small additional gain or loss on the crypto used to pay that fee, though you can often treat the fee as a deductible expense that offsets proceeds.

Heightened IRS scrutiny

While DeFi is considered decentralized, it doesn’t exempt you from reporting requirements or owing taxes on your defi activity.

The IRS is focusing more closely on decentralized protocols, and it has begun collecting KYC data from centralized on-ramps that connect investors to DeFi.

As new regulations roll out in 2025 (which come into effect in the 2026 reporting year) the IRS intends to close loopholes and enforce IRS crypto tax rules across all crypto exchanges and DeFi platforms.

What makes a crypto swap taxable?

Because cryptocurrency is treated as property, exchanging crypto is akin to selling one asset and immediately acquiring another.

Let’s say you trade an altcoin for an NFT, or swap BTC for ETH. The coin you give up is considered “sold.”

The coin or NFT you receive is considered “purchased” at that exact moment, and the IRS calculates your tax based on the difference between the fair market value (FMV) of the asset you gave up and its original cost basis.

The following guidance from the IRS establishes these rules:

• IRS Notice 2014-21: Establishes that cryptocurrency is subject to the same tax rules as other forms of property.
• Updated IRS FAQs (2024/2025): Clarify that if you “exchange, sell, or otherwise dispose of” crypto, the event is taxable.

What if you never convert to fiat?

Even if you never see a single dollar in your bank account, swapping one cryptocurrency for another still produces gains or losses in U.S. dollar terms.

This means you need to record the fair market value of the coin you got rid of (in USD) at the moment of the swap, then figure out what you initially paid (in USD terms). The difference is your capital gain or loss.

Examples of taxable crypto swaps

1. BTC swapped for ETH (profit scenario)

• Purchase: You buy 0.5 BTC for $10,000.
• Fair market value at swap: The 0.5 BTC rises to $15,000.
• Swap event: You exchange the 0.5 BTC for ETH.
• Result: You have realized a $5,000 gain ($15,000 – $10,000).

Since you disposed of the Bitcoin, you owe taxes on the $5,000 gain. The ETH you receive has a cost basis of $15,000. Future gains or losses on that ETH will be calculated from the $15,000 baseline.

2. ETH swapped for SOL (loss scenario)

• Purchase: You buy 2 ETH for $8,000 (i.e., $4,000 each).
• Fair market value at swap: They drop in total value to $5,000.
• Swap event: You exchange the 2 ETH for SOL worth $5,000.
• Result: You have realized a $3,000 capital loss ($5,000 – $8,000).

You still must report this swap, but the upside of a capital loss is that it can offset other gains and potentially reduce your overall tax bill.

3. Crypto-for-stablecoin trades

Swapping to a stablecoin like USDC or USDT is taxable, just like any other swap.

Even though stablecoins intend to maintain a 1:1 peg with the dollar, they remain classified as property for tax purposes.

For instance, trading BTC worth $20,000 for 20,000 USDC triggers a capital gain or loss based on your BTC’s initial cost basis.

4. NFT swaps**

NFT swaps also fall under cryptocurrency swap guidelines.

If you trade an NFT for another NFT )or for a crypto token) you must calculate any gains or losses based on the NFT’s fair market value at the time of disposal.

For example, if you originally purchased an NFT for $500 worth of ETH and later swapped it for an NFT worth $800, you have a $300 taxable gain.

Consequences of failing to report crypto swaps

The IRS increasingly uses blockchain analytics and exchange data to identify taxpayers who fail to report crypto exchange taxes. If you neglect to include your swaps:

• You could face accuracy-related penalties of up to 20% of the underpaid tax.
• Interest accrues on back taxes owed.
• Willful negligence can lead to larger fines or, in extreme cases, criminal charges.

Even if you took a loss, it’s still important to report. Unreported losses can’t offset other gains. Reporting everything not only avoids potential audits and fines but also ensures you benefit from deductions on losing trades.

Sources

• IRS Notice 2014-21 – Guidance on the tax treatment of virtual currency
• IRS FAQs on Virtual Currency Transactions – Updated explanations of crypto tax obligations
• IRS Form 8949 Instructions – For reporting capital gains and losses
• IRS Schedule D Instructions – Summary of capital gains and losses
• IRS Broker Reporting Regulations (1099-DA) – Final rules for digital asset broker reporting