How Crypto Swaps and Token-to-Token Trades Are Taxed

Introduction

Cryptocurrency traders often swap one token for another—such as exchanging Ethereum for Solana or Bitcoin for USDC. While these trades might feel like simple swaps, the IRS does not see them that way. In the U.S., every crypto-to-crypto trade is considered a taxable event, meaning you must report gains or losses just as if you sold crypto for cash. Understanding how swaps and token-to-token trades are taxed is essential to avoid surprises during tax season.

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Why Token-to-Token Trades Are Taxable

The IRS treats cryptocurrency as property, not as money. When you dispose of one token to acquire another, you are effectively selling property. That “disposal” creates a taxable event, even if you didn’t cash out to dollars.

For example:

• If you trade 1 ETH for 50 SOL, the IRS considers it as selling ETH at fair market value and using the proceeds to buy SOL.

• Any gain or loss between the price you originally paid for ETH and its value at the time of trade must be reported.

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Calculating Taxes on Crypto Swaps

When you swap tokens, here’s how to calculate your taxable amount:

1. Determine Cost Basis – What you originally paid for the crypto (purchase price + fees).

2. Find Fair Market Value at Trade Time – The U.S. dollar value of the asset you disposed of at the moment of the swap.

3. Calculate Capital Gain/Loss –
   $FairMarketValueatTrade–CostBasis=TaxableGainorLoss$

If the trade results in profit, you owe taxes. If it results in a loss, you can use it to offset other gains.

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Short-Term vs. Long-Term Capital Gains

The IRS applies capital gains rules depending on how long you held the crypto before the trade:

• Short-term gains (held less than 12 months) are taxed at your ordinary income tax rate.

• Long-term gains (held for more than 12 months) qualify for lower tax rates (0%, 15%, or 20%).

This distinction can make a big difference in your overall tax bill.

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Special Situations in Crypto Swaps

• Stablecoin Trades: Swapping BTC for USDT (a stablecoin) is still taxable, even though you didn’t convert to cash.

• DEX Swaps: Trades on decentralized exchanges (Uniswap, PancakeSwap, etc.) count the same as centralized exchange trades.

• Cross-Chain Swaps: Moving assets between chains that require swapping tokens is taxable if one asset is disposed of in the process.

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Reporting Token-to-Token Trades

When filing taxes, each swap must be reported on Form 8949 and then summarized on Schedule D of your tax return. Crypto tax software can simplify this process by automatically tracking trades and calculating gains/losses.

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Key Takeaways

• Every token-to-token trade is taxable.

• Calculate gains/losses based on cost basis vs. fair market value.

• Short-term and long-term capital gains rules apply.

• Even swaps involving stablecoins or decentralized exchanges are taxable.

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Final Thoughts

Crypto swaps and token-to-token trades may feel routine, but from a tax perspective, they are significant events. By keeping detailed records and using crypto tax tools, you can stay compliant with IRS regulations and avoid costly mistakes.