How are cryptocurrency gains taxed for US expats?

Cryptocurrency gains are taxed the same way for US expats as for domestic taxpayers — the IRS treats cryptocurrency as property, not currency, which means every sale, exchange, or disposal of crypto is a taxable event that must be reported on your US tax return.

When you sell cryptocurrency for fiat currency or exchange one cryptocurrency for another, you must calculate the capital gain or loss. The gain is the difference between your cost basis (what you paid, including fees) and the proceeds (what you received). Short-term gains (assets held less than one year) are taxed at ordinary income rates up to 37%. Long-term gains (assets held more than one year) benefit from preferential rates of 0%, 15%, or 20% depending on your income level.

Cryptocurrency gains are reported on Form 8949 and Schedule D of your Form 1040. Beginning with the 2024 tax year, the IRS requires all taxpayers to answer a question on the front page of Form 1040 about whether they received, sold, exchanged, or otherwise disposed of any digital assets.

Critically for expats: the Foreign Earned Income Exclusion (FEIE) does NOT apply to cryptocurrency gains. The FEIE only covers earned income from personal services (wages, self-employment). Capital gains from crypto trading are investment income and cannot be excluded. This means crypto gains are always subject to US tax, regardless of where you live.

However, if you pay capital gains tax on crypto in your country of residence, you may be able to claim a Foreign Tax Credit for those taxes on Form 1116 to offset your US liability. The effectiveness of this depends on the foreign tax rate and the income category limitations.

Additionally, the Net Investment Income Tax (3.8%) may apply to your crypto gains if your modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly). This surtax applies regardless of whether you live in the US or abroad.

Proper record-keeping is essential for crypto tax compliance. Track every transaction, including dates, amounts, cost basis, and proceeds.