How Does Illinois Tax Cryptocurrency?
Illinois treats cryptocurrency as property for tax purposes, aligning with IRS guidelines. This means crypto transactions are subject to capital gains tax or ordinary income tax, depending on the activity. Here’s what’s taxable:
- Selling crypto for fiat currency (e.g., USD)
- Trading one crypto for another (e.g., Bitcoin for Ethereum)
- Using crypto to purchase goods/services
- Earning crypto as income (e.g., mining, staking, or freelance payments)
Short-term capital gains (assets held ≤1 year) are taxed at your regular income tax rate (4.95% in Illinois), while long-term gains (held >1 year) face federal rates up to 20%, plus Illinois’ 4.95% rate.
Reporting Crypto Taxes in Illinois
Follow these steps to report cryptocurrency on your Illinois taxes:
- File IRS Form 8949 and Schedule D to report capital gains/losses federally.
- Transfer the net gain/loss to Form IL-1040 (Illinois’ income tax return).
- Report crypto earned as income on Schedule E (Form IL-1040).
Note: Illinois doesn’t have a separate crypto tax form—income and gains are reported alongside traditional assets.
Crypto Tax Deductions and Losses in Illinois
Illinois allows these crypto-related deductions:
- Capital losses: Offset up to $3,000 in ordinary income annually (unused losses carry forward).
- Mining expenses: Deduct equipment costs, electricity, and pool fees if mining as a business.
- Transaction fees: Subtract fees from taxable gains (e.g., $50 Ethereum fee reduces a $500 gain to $450).
Pro Tip: Illinois doesn’t enforce the IRS wash sale rule, letting you immediately claim losses on repurchased assets.
4 Steps to Stay Compliant With Illinois Crypto Taxes
- Track all transactions: Use tools like CoinTracker or Koinly to log dates, amounts, and purposes.
- Calculate gains/losses: Apply FIFO or specific identification methods consistently.
- Consult a tax professional: Seek help for complex cases like DeFi or NFTs.
- File on time: Illinois follows federal deadlines (April 15, 2024, for 2023 taxes).
Illinois Crypto Tax FAQ
1. Do I owe taxes if I hold crypto without selling?
No—only taxable when sold, traded, spent, or earned as income.
2. How does Illinois treat stolen or lost crypto?
Report as a theft loss deduction if you have documentation (e.g., police reports, exchange statements).
3. Are there penalties for not reporting crypto?
Yes—up to 20% of unpaid taxes plus interest. Deliberate evasion may lead to criminal charges.
4. Does Illinois tax crypto gifts?
Recipients pay no taxes, but gifts exceeding $17,000 (2023) require federal Form 709 (not Illinois-specific).
5. Can I amend past returns for crypto errors?
Yes—file Form IL-1040-X within 3 years of the original deadline.
Disclaimer: Crypto tax laws evolve. Consult a certified Illinois tax advisor for personalized guidance.
