How are crypto-to-crypto swaps taxed?

Crypto-to-crypto swaps are taxable events under US tax law. Every time you exchange one cryptocurrency for another — whether through a centralized exchange, decentralized exchange, or direct peer-to-peer transaction — you must calculate and report the capital gain or loss on the cryptocurrency you disposed of.

The IRS confirmed in its 2014 guidance (Notice 2014-21) that cryptocurrency is treated as property, and the general rules for property transactions apply. A swap of one property for another is a taxable exchange. The IRS has also explicitly stated that the like-kind exchange rules under Section 1031 do not apply to cryptocurrency exchanges (this was clarified retroactively under the Tax Cuts and Jobs Act, which limited Section 1031 to real property starting in 2018).

To calculate the tax impact of a crypto-to-crypto swap, you need the cost basis of the cryptocurrency you are giving up, the fair market value of the cryptocurrency you are receiving at the time of the swap, and the resulting gain or loss. For example, if you swap 1 ETH (cost basis $2,000) for 50,000 DOGE at a time when 1 ETH is worth $3,500, you have a taxable gain of $1,500. Your cost basis in the 50,000 DOGE becomes $3,500.

This applies to all types of swaps including: trading one cryptocurrency for another on exchanges, swapping tokens on decentralized exchanges like Uniswap, wrapping tokens (potentially — this is debated), and converting between stablecoins (yes, even USDC to USDT is technically taxable, though the gain would typically be minimal).

The high volume of swaps that many active traders execute can create an enormous reporting burden. It is not uncommon for active DeFi users to have thousands of taxable swaps in a single year. This is where crypto tax software becomes essential — it can automatically track the cost basis through chains of swaps and calculate the gain or loss on each transaction.

For expats, crypto-to-crypto swap gains are capital gains and cannot be excluded under the FEIE. Foreign Tax Credits may apply if your country of residence also taxes these transactions.