One Big Reason to HODL Bitcoin: to Lower Taxes

Bitcoin has doubled in price in the last month. Ether’s price has doubled in the last two weeks. And the global cryptocurrency market cap is now north of $1 trillion, double what is was in mid-November.

So, sell while the price is high? 

Not so fast, said Shehan Chandrasekera, Head of Tax Strategy at crypto tax software company CoinTracker on today’s episode of The Decrypt Daily.

Chandrasekera told host Matthew Aaron that crypto users who file US taxes should pay attention to the capital gains taxes—which are applied to the difference between the purchase price and selling price of a coin.

“The amount of taxes you pay on that gain depends on how long you kept that coin before selling it,” he explained.

Coins held for longer than one year are taxed at long-term capital gains rates of 0%, 15%, and 20%. Coins held for less than that amount of time can be taxed at short-term rates between 0% and 37%.

Moreover, those are maximum rates—what users actually pay depends on their tax bracket.

For instance, in 2021, single (aka unmarried and childless) filers pay 0% on the first $40,400 of taxable income (including the profit from the sale), 15% on amounts from $40,401 to $445,850, and 20% on the income and earnings beyond that. Those thresholds are higher for married people.

“The long-term capital gain rate has been extremely favorable,” Chandrasekera said. “We talk to these wealthy individuals, they never sell their stock positions of any type of asset without holding it for 12 months or more. So I encourage you to do the same. Just HODL.”

That means you shouldn’t expect all that institutional investment in Bitcoin from 2020 to suddenly disappear. It’s just not beneficial from a tax perspective.

As for whether to sell after a year, Chandrasekera had one truism to share: “If you just decide to hold on, like, forever, it's completely tax free.”