Cryptocurrency is considered “”property”” for federal income tax purposes, meaning the IRS treats it as a capital asset. This means you pay the same taxes you may owe when realizing a gain or loss on the sale or exchange of a capital asset. Only how you report that has been a challenge, until now.

Thankfully, the IRS made several updates and additions to Form 1447, including an expanded section for reporting virtual currency. Plus, the new form also includes a penalty structure for employment tax and estate and gift issues, along with a new checkbox for inability to pay in full.

Here’s what to keep in mind:

Calculating Taxes When You Buy and Sell Cryptocurrency: When you buy and sell cryptocurrency, comparing your net proceeds to your cost basis isn’t the only step in figuring how much you owe in crypto taxes. Also, the length of time you held the asset may further determine the type of capital gain or loss you recognize.

Short-Term Capital Gains and Losses: When you buy and sell an asset within a 365-day period, you recognize either a short-term capital gain if it sold for more than what you paid for it or a short-term capital loss if it sold for less than what you paid for it. Short-term gains and losses are subject to the same tax rates you pay on ordinary income, such as wages, salaries, commissions, and other earned income. The IRS has seven tax brackets for ordinary income ranging from 10% to 37% in 2021.

Long-Term Capital Gains and Losses: If you buy an asset and sell it after one year, the resulting difference between your net sales proceeds and your cost basis is a long-term capital gain or loss. Typically, you’ll pay less tax on a long-term gain than on a short-term gain because the rates are generally lower. Currently, there are three tax rates for long-term capital gains—0%, 15%, and 20%; the rate you pay will depend on your income.