Crypto Tax Glossary
Plain-English definitions for the terms that come up when figuring out crypto gains and losses. Not tax advice -- just the vocabulary.
AirdropCapital GainCapital LossCost BasisDisposalFair Market Value (FMV)FIFO (First-In-First-Out)HIFO (Highest-In-First-Out)Holding PeriodLIFO (Last-In-First-Out)Long-Term Capital GainProceedsRealized Gain/LossShort-Term Capital GainSpecific IdentificationStaking RewardsTaxable EventUnrealized Gain/LossWash Sale
- Airdrop
- Free tokens sent to a wallet, often for promotion or as a reward for prior activity. In many jurisdictions, the fair market value at receipt is taxable income, and that value also becomes your cost basis for a later sale.
- Capital Gain
- The profit made when you sell, trade, or spend an asset for more than its cost basis. The opposite is a capital loss.
- Capital Loss
- The loss incurred when you dispose of an asset for less than its cost basis. Often usable to offset capital gains, subject to local rules.
- Cost Basis
- What you originally paid for an asset (price plus, in some regimes, associated fees). Gain or loss is calculated as proceeds minus cost basis.
- Disposal
- Any event that ends your ownership of an asset in a way that can trigger a taxable gain or loss -- selling for cash, trading for another crypto, or spending it.
- Fair Market Value (FMV)
- The price an asset would sell for on the open market at a given moment -- used to value income events like airdrops, mining, and staking rewards.
- FIFO (First-In-First-Out)
- A cost-basis matching method that assumes the oldest units of an asset are the ones sold first. The default assumption in many jurisdictions absent specific identification.
- HIFO (Highest-In-First-Out)
- A cost-basis matching method that sells the most expensive lot first, which minimizes the reported gain (or maximizes the reported loss) for that sale.
- Holding Period
- The length of time between acquiring and disposing of an asset. Determines whether a gain is classified as short-term or long-term.
- LIFO (Last-In-First-Out)
- A cost-basis matching method that assumes the most recently acquired units are the ones sold first.
- Long-Term Capital Gain
- A gain on an asset held for longer than the jurisdiction's long-term threshold (more than one year in the US). Usually taxed at a lower rate than short-term gains.
- Proceeds
- The value received when you dispose of an asset -- the sale price, or the fair market value of whatever you received in a trade.
- Realized Gain/Loss
- A gain or loss that has actually occurred because you disposed of the asset -- as opposed to an unrealized gain/loss, which is just a paper change in value while you still hold it.
- Short-Term Capital Gain
- A gain on an asset held for the jurisdiction's short-term threshold or less (one year or less in the US). Often taxed as ordinary income.
- Specific Identification
- A cost-basis method where you explicitly choose which lot you're selling at the time of sale, instead of defaulting to FIFO/LIFO/HIFO. Usually requires detailed, contemporaneous records.
- Staking Rewards
- Tokens earned for participating in a proof-of-stake network's validation. Commonly taxed as income at fair market value when received, which then becomes their cost basis.
- Taxable Event
- Any transaction that can trigger a tax consequence -- selling, trading, spending, or (in many regimes) receiving income like staking rewards or airdrops. Simply buying and holding is not one.
- Unrealized Gain/Loss
- A paper gain or loss on an asset you still hold -- the price has moved, but nothing has been reported for tax purposes yet because there's been no disposal.
- Wash Sale
- Selling an asset at a loss and quickly buying it back to claim the loss while keeping the position. Some jurisdictions disallow the loss in this case for stocks; whether the same rule applies to crypto varies and is an evolving area -- check current guidance.