Taxes are an unfortunate reality for any American trading with a taxable brokerage account. Crypto gains are no different in the eyes of the Internal Revenue Service.
According to the IRS, crypto and other digital assets are treated as physical property for tax purposes, so transactions are taxable. That’s just for federal taxes, though. States vary widely in how they tax crypto gains.
How States Tax Crypto
Crypto is taxed like any other investment gains. If you hold crypto for under a year, you’re susceptible to short-term capital gains, which can be substantially more than long-term gains, depending on your particular tax situation. States that tax crypto gains tend to tax gains at the same rate as income.
However, not all states tax crypto gains. Roughly ten currently don’t tax crypto gains. Unfortunately, there are also those that take a sizable bite out of them.
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States Where Crypto Gains Cost You the Most
Not all states are equal in taxing crypto gains. These are the six worst states for taxation on crypto gains, according to BitCoin Well.
1. California
- Crypto gains taxed: Up to 13.3%
California taxes both short-and long-term gains at the same rate, according to Bitbo. Included in the 13.3% is an additional 1% for household incomes exceeding $1 million.
2. Hawaii
- Crypto gains taxed: Up to 11%
The lack of clarity in tax regulations makes the environment for crypto trading less than desirable, according to Count on Sheep.
3. New York
- Crypto gains taxed: Up to 10.9%
New York also taxes both short- and long-term gains at the same rate, per Bitbo. Households earning under $1 million face a significantly lower rate, maxing out at 6.85%.
4. Minnesota
- Crypto gains taxed: Up to 10.85%
Minnesota taxes capital gains as regular income. Like California, the tax rate includes an additional 1% for household incomes exceeding $1 million, per Bitbo.
5. New Jersey
- Crypto gains taxed: Up to 10.75%
New Jersey taxes capital gains as regular income, with no distinction between short- and long-term gains, according to Bitbo.
6. Oregon
- Crypto gains taxed: Up to 9.9%
Oregon taxes capital gains as regular income, with no distinction between short- and long-term gains, per Bitbo.
What Crypto Investors Should Keep in Mind
Maintaining detailed transaction records is essential when trading crypto in a taxable account. Traders will receive Form 1099-DA in early 2026 to report sales proceeds. It’s imperative to include that and all activity when filing taxes, as advanced crypto traders are more susceptible to an IRS audit, according to the Wall Street Journal.
If you have substantial gains, don’t overlook holding assets long-term to reduce federal taxes. It’s also possible to use tax-loss harvesting to offset gains. For traders considering a move, remember that state taxes can vary widely.
Where you live plays a major role in how much of your crypto gains you can keep. Understanding your local regulations is key to mitigating surprises at tax time.
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This article originally appeared on GOBankingRates.com: Crypto Taxes: 6 States Most Likely To Cut Into Your Gains
