US tax scenario that wrecks people:
Trader hits $5M unrealized gains in 2025
Doesn't sell. Doesn't pay tax.
Now portfolio is down 80%
Still liable for the $5M?
Short answer: Depends on your trades.
If you NEVER sold anything in 2025, no taxable event = no tax owed on unrealized gains. You're good.
But if you did ANY swaps, sells, or token-to-token trades during that run-up, you locked in gains at those prices. IRS doesn't care if you held the new bags and they tanked 80%. You owe tax on the realized gains at time of trade.
This is how people get destroyed. They trade $ETH to $SOL at peak, think they're still "in crypto" so no tax event. Wrong. That swap = taxable gain. Portfolio crashes, but tax bill stays.
Track every single trade. Use proper software. Don't be the guy who made $5M on paper, paid $0 attention to cost basis, and now owes $2M to the IRS with $1M left in the wallet.
Crypto taxes are brutal. Plan accordingly or get rekt by Uncle Sam.
Trader hits $5M unrealized gains in 2025
Doesn't sell. Doesn't pay tax.
Now portfolio is down 80%
Still liable for the $5M?
Short answer: Depends on your trades.
If you NEVER sold anything in 2025, no taxable event = no tax owed on unrealized gains. You're good.
But if you did ANY swaps, sells, or token-to-token trades during that run-up, you locked in gains at those prices. IRS doesn't care if you held the new bags and they tanked 80%. You owe tax on the realized gains at time of trade.
This is how people get destroyed. They trade $ETH to $SOL at peak, think they're still "in crypto" so no tax event. Wrong. That swap = taxable gain. Portfolio crashes, but tax bill stays.
Track every single trade. Use proper software. Don't be the guy who made $5M on paper, paid $0 attention to cost basis, and now owes $2M to the IRS with $1M left in the wallet.
Crypto taxes are brutal. Plan accordingly or get rekt by Uncle Sam.