The IRS treats cryptocurrency transactions seriously, with certain actions triggering tax obligations. Selling crypto for a profit, or exchanging one digital asset for another, is considered a taxable capital gain. Taxes are reported annually, not at the time of transaction. The tax rate depends on how long the crypto was held; gains from assets held for a year or less are taxed at higher ordinary income rates (10-37%), while longer-term holdings may qualify for lower capital gains rates.