What is Connecticut's crypto tax rate?

Connecticut taxes crypto gains at 2% to 6.99%. No preferential rate for long-term capital gains. The bottom two brackets were reduced in 2024 (first bracket from 3% to 2%, second from 5% to 4.5%).

Connecticut Crypto Tax Services

Q: I live in Stamford but work in Manhattan. Where are my crypto gains taxed?

As a CT resident, crypto gains are taxable to Connecticut, not New York. Investment income is sourced to your residence state. You avoid NYC's 3.876% tax on crypto gains while claiming CT credit for NY tax paid on wages.

Q: Can Pass-Through Entity Tax help reduce my crypto taxes?

Potentially, if you trade through an LLC/S-Corp and qualify for Trader Tax Status (720+ trades/year, 4+ hours daily). PET allows entity-level CT tax payment deductible federally, working around the $10,000 SALT cap.

Connecticut taxes cryptocurrency gains at ordinary income rates from 2% to 6.99%, with no preferential treatment for long-term holdings. Fairfield County's proximity to New York creates unique multi-state complexities for crypto investors. This guide covers Connecticut-specific rules, Pass-Through Entity Tax planning, and your 2025 federal compliance requirements.

How is Cryptocurrency Taxed in Connecticut? (Summary)

Connecticut taxes cryptocurrency as property following federal guidelines but with key state-specific differences:

Tax Rates: All crypto gains (short-term and long-term) taxed as ordinary income at 2% to 6.99%
No Long-Term Preference: No preferential rate for assets held over one year
2024 Rate Reduction: Bottom brackets reduced (first bracket from 3% to 2%, second from 5% to 4.5%)
Pass-Through Entity Tax: PET election can help work around $10,000 federal SALT cap
Capital Losses: $3,000 annual deduction limit with unlimited carryforward
State Crypto Prohibition: PA 25-66 (effective October 2025) prohibits state government from holding or accepting cryptocurrency

Bottom line: Connecticut residents must report all crypto gains to the state, with tax liability potentially higher than states offering lower rates or long-term capital gains preferences.

Fairfield County: Where Wall Street Meets Connecticut Tax Law

Fairfield County—including Stamford, Greenwich, Norwalk, Westport, and Darien—is home to many finance professionals who commute to New York City. This creates unique multi-state tax considerations for crypto investors who may earn wages in New York but are Connecticut residents.

Multi-State Complexity

Wage Income: Taxable to NY where earned (you claim CT credit for NY tax paid)
Crypto Gains: Taxable to Connecticut as your state of residence
No NYC Tax: Connecticut residents don't pay NYC's additional 3.876% on crypto gains

At Monaco CPA, we understand the unique challenges of Connecticut taxation—including multi-state issues and the Pass-Through Entity Tax. Our remote service model serves clients throughout Connecticut with specialized crypto tax expertise.

2025 Regulatory Changes Affecting Connecticut Crypto Investors

Federal regulatory changes add new compliance requirements for all Connecticut taxpayers. The Connecticut Department of Revenue Services (DRS) receives federal data through information sharing.

Wallet-by-Wallet Cost Basis Tracking (Effective January 1, 2025)

Revenue Procedure 2024-28 requires calculating gains and losses separately for each wallet or account. FIFO (First-In, First-Out) is the default method unless you make specific identification elections. Notice 2025-7 provides temporary relief through 2025.

Form 1099-DA Implementation

Form 1099-DA is a new federal tax form that custodial brokers use to report gross proceeds for 2025 transactions. Connecticut DRS receives this data through federal information sharing, so discrepancies will trigger scrutiny from both IRS and Connecticut.

DeFi Broker Rule Repealed

Public Law No. 119-5 (April 2025) means decentralized platforms won't report activity. Connecticut still expects full reporting of all gains regardless of 1099 receipt.

State Legislation: PA 25-66

Connecticut enacted PA 25-66 (effective October 1, 2025), which prohibits state government agencies from accepting or holding cryptocurrency. Connecticut became the first state to explicitly ban state-level crypto holdings. This does not affect individual investors' tax obligations.

Connecticut State Crypto Tax Rules

Connecticut treats cryptocurrency as property for tax purposes, consistent with federal treatment. All crypto income—including gains from trades, staking, mining, and airdrops—must be reported.

Connecticut Income Tax Rates (2025)

No Long-Term Capital Gains Preference

Connecticut does not offer preferential rates for long-term capital gains. All gains are taxed as ordinary income regardless of holding period.

Combined Federal and Connecticut Rates

Capital Loss Treatment

Connecticut follows federal capital loss rules:

Losses offset gains dollar-for-dollar
Net losses deductible against ordinary income up to $3,000 per year
Unused losses carry forward indefinitely
No wash sale rules for cryptocurrency

Pass-Through Entity Tax (PET) Planning

Connecticut's Pass-Through Entity Tax allows eligible business entities to pay state tax at the entity level, generating a federal deduction that works around the $10,000 SALT deduction cap.

How PET Works

Eligible pass-through entities (LLCs, S-Corps, partnerships) elect to pay Connecticut tax at the entity level
The entity-level tax is deductible for federal purposes (not subject to SALT cap)
Members receive a credit on their Connecticut individual returns

PET for Crypto Traders

To benefit from PET for crypto trading, you generally need:

Trader Tax Status (TTS): Trading must qualify as a business, not passive investing
TTS Requirements: 720+ trades per year, 4+ hours daily, short holding periods
Entity Structure: Trade through an LLC or S-Corp

PET is not available for passive crypto investors—only for those whose trading activity rises to the level of a trade or business.

Taxable Crypto Transactions

Every crypto transaction can trigger Connecticut tax obligations. Understanding taxable events helps with compliance and planning.

Taxable Events

Selling crypto for USD or other fiat currency
Trading one cryptocurrency for another
Using crypto to purchase goods or services
Receiving crypto as payment (ordinary income at FMV)
Mining rewards when received
Staking rewards when you have dominion and control
Airdrops and hard forks when received

Connecticut vs. New York for Fairfield County Residents

If you live in Fairfield County but work in New York City:

Crypto gains: Taxed by Connecticut (your residence), not New York
Wage income: Taxed by New York (where earned); CT credit for NY tax paid
Advantage: You avoid NYC's 3.876% additional tax on investment income

Virtual Currency Kiosk Licensing

Connecticut requires licensing for virtual currency kiosk operators (effective October 1, 2024). This affects businesses operating Bitcoin ATMs and similar machines in the state, not individual investors.

Services for Connecticut Crypto Investors

Connecticut Tax Return Preparation: Complete Form CT-1040 with proper Schedule CT-SI for capital gains reporting
Multi-State Returns: Coordinated CT and NY returns for Fairfield County commuters
Federal Return Coordination: Integrated federal and state preparation ensuring consistency
Transaction Reconciliation: Rev. Proc. 2024-28 compliant wallet-by-wallet tracking
Form 1099-DA Matching: Reconciling exchange-reported data to prevent DRS and IRS notices
Pass-Through Entity Tax Planning: Evaluating PET election benefits for entity-based traders
Tax-Loss Harvesting: Strategic loss realization without wash sale restrictions
Audit Defense: Representation before IRS and Connecticut DRS
Estimated Tax Planning: Quarterly projections to avoid underpayment penalties

Areas We Serve in Connecticut

Fairfield County: Stamford, Greenwich, Norwalk, Westport, Darien, New Canaan, Wilton, Fairfield, Bridgeport
Greater Hartford: Hartford, West Hartford, Glastonbury, Farmington, Simsbury, Avon, Canton
New Haven Area: New Haven, Hamden, Guilford, Madison, Branford, Milford
Other Areas: Waterbury, Danbury, New London, and communities throughout CT via secure portal and video consultation

Connecticut vs. Neighboring States

Frequently Asked Questions

I live in Stamford but work in Manhattan. Where are my crypto gains taxed?

As a Connecticut resident, your crypto gains are taxable to Connecticut, not New York. Investment income is generally sourced to your state of residence. Your NY employer may withhold NY tax on your wages, but you'll claim a credit on your CT return for taxes paid to NY on that wage income. Crypto gains stay with CT.

Does Connecticut tax crypto at lower rates than regular income?

No. Connecticut, like most states, does not offer preferential rates for capital gains. Both short-term and long-term crypto gains are taxed at ordinary income rates up to 6.99%.

I'm considering moving from Connecticut to Florida. Any special considerations?

Yes. Realize your crypto gains after establishing Florida residency, not before. Connecticut will tax gains realized while you're a CT resident. Also ensure you properly establish Florida domicile—Connecticut may audit your departure if you had significant income in your final year as a resident.

Can the Pass-Through Entity Tax help reduce my crypto taxes?

Potentially, if you operate your crypto trading or business through an LLC or S-Corp and qualify for Trader Tax Status. The PET election allows the entity to pay CT tax and deduct it federally, working around the $10,000 SALT cap. However, this requires meeting TTS criteria (720+ trades/year, 4+ hours daily, short holding periods) and operating through an entity. It's not available for passive investors.

What's the benefit of working with a CPA who knows Connecticut?

Connecticut's position between New York and Massachusetts creates multi-state complexity that generic crypto tax services don't understand. Add in Connecticut-specific provisions like the PET election, and you need someone who knows both crypto taxation and the state's unique rules.

Get Expert Help with Connecticut Crypto Taxes

Connecticut's tax structure adds complexity beyond federal requirements. Whether you're in Fairfield County navigating multi-state issues or anywhere else in the state, let's discuss your situation and build a compliant tax strategy.

Schedule a Consultation

Phone: (862) 320-9554
Email: Greg@MonacoCPA.CPA