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Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough somethi
by kentm 9y ago
Treat it as if you sold the crypto for USD (and pay capital gains). So if you bought a crypto for $10, the price appreciated to $110, and then you bough something worth $110, then you have to pay taxes on $100 of income. It’s the same place you repot capital gains for equity (I don’t remember the form number)
- cft 9y agoWhat if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the purchase- the one I bought at $10 or the one at $200? It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if in the end of the year we had to report every dollar transaction (e.g. buying a coffee and a bagel), trace how you earned that dollar and calculate capital gains/loss.
- kentm 9y agoIt does make it hard, yes, but that’s what the IRS expects. Edit: easiest thing to do as a workaround, imo, would be to build tax reporting into wallet software.
- cft 9y agoPS. I just edited- I think it's hard to calculate even in principle?
- kentm 9y agoFirst off, yes it’s a pain in the ass in practice and a real headwind for using crypto as a currency. At the same time most people are treating crypto as a property investment in practice, so it’s hard to dispute the IRS’s approach here. As for solving the problem with software, it’s already “solved” by your broker. In the investing world when you sell you choose which lots you want to sell. You typically tell your broker what sort of strategy you want to use (LIFO vs FIFO) and they handle it for you. So I’d expect a software solution to work the same way - you would configure the software to LIFO/FIFO/other.
- s73v3r_ 9y agoIt’s similar to stocks, when you buy the same stock at different times. Most people simply go “First In, First Out”, although you can use average cost basis or simply select the lot you wish to have sold.
- isostatic 9y agoIf I bought 1 ton of gravel at $10, then bought one ton of gravel at $200, then swapped one ton when it was $100 for a meal out. Which ton was used for the purchase, the one I bought at $10 or the one at $200?
- Mtinie 9y agoI’m unclear if you were asking this tongue-in-cheek, or if you really were interested and simply used an arbitrary asset for your example, but in case it was the later, here’s my understanding: Do you account typically report FIFO or LIFO? You can register a capital loss of $100 if you account last-in-first-out, but will be on the hook when you sell your $10 gravel on the future at any price higher than $10. You’d register a capital gain of $90 over cost if you account first-in-first-out. AFAIK, in either case you have to account for all of your transactions the same way, for the year in question. It’s not pick and chose to gain the best benefit. Tax rate in either case would be calculated based on how long you held your gravel.
- isostatic 9y agoArbitrary asset, my assumption was that bitcoin is no different to any other asset. Now you mention it, I do remember LIFO, FIFO and AvCo from when my mother was doing accountancy courses when I was a wee lad in the 90s.
- ThrustVectoring 9y agoWhichever one you report to the IRS.
- Spooky23 9y agoThis is precisely the same situation that you would have using other currencies.
- isostatic 9y agoIn the U.S. if you were to spend $100 on euros in January, buying say €80, then spend another $100 in March, buying €70, then you sell €75 in June for $130, you presumably have to show that on your tax form?
- spookthesunset 9y ago> It sort of kills the use of cryptocurrency as "currency" in the US. Because nobody was using cryptocurrency as a currency in the first place--it is far to volatile to behave as a functioning currency. It is all being used for speculation.