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What is someone were to trade one cryptocurrency for another? For example, if I bought Litecoins with Bitcoins, and later sold for a gain in Bitcoins, how woul

by stan503 13y ago

What is someone were to trade one cryptocurrency for another? For example, if I bought Litecoins with Bitcoins, and later sold for a gain in Bitcoins, how would I be taxed? From the article it seems I would only be taxed until I ultimately realized my gains in USD. Would I have to maintain a record of all my "altcoin" transactions in this case?

IgorPartola 13y ago
By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD. So if you invest $10 in BTC, then do some magical trading and take out $1000, then you gained $990. I have no idea how this actually works, or if you could say that you mined the $990 and broke even on the $10, or if you have to provide a paper trail for every single cryptocurrency transaction that led you to posses the money, but this is definitely going to get hairy...
- jstalin 13y ago
  "By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD." According to US tax law, any accession to wealth is taxable when the gain is realized (yes, there are exceptions to timing and basis). So, if you mined a BTC and spent $1 doing it, then used that 1 BTC to purchase some LTC when the value of the BTC was $100, you gained $99 at the time you traded it for LTC. That gain is realized at the time of the exchange and taxable at that time.
- modeless 13y ago
  Applying math analogies to tax law is not valid and I'm pretty sure your conclusion is incorrect. Exchanging one cryptocurrency for another would probably be considered a barter transaction, and you would be required to report capital gains as if you had exchanged into USD first and performed the transaction with USD, even if that's not what you did.
gamblor956 13y ago
In certain circumstances, that could be treated as a "like-kind exchange" governed by Sec. 1031 which is not subject to taxation until the property received in exchange is sold (see http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031. http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Se...). However, if that doesn't apply, you should generally owe taxes on any gain resulting from the conversion. Based on the types of properties excluded from like-kind exchange treatment, you should probably have taxable gain (or loss!) from the exchange.
travisp 13y ago
If you exchange one mutual fund for another, you pay capital gains (this is one reason IRAs are so tax advantageous). Typically during bartering, you also owe capital gains even if you never receive USD. It therefore seems possible that you may owe capital gains taxes when you buy Litecoins with Bitcoins. There's generally no "this must become USD" rule before you owe capital gains tax. I am not an accountant or tax lawyer.
deleted 13y ago
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by stan503 13y ago

IgorPartola 13y ago

By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD. So if you invest $10 in BTC, then do some magical trading and take out $1000, then you gained $990. I have no idea how this actually works, or if you could say that you mined the $990 and broke even on the $10, or if you have to provide a paper trail for every single cryptocurrency transaction that led you to posses the money, but this is definitely going to get hairy...

jstalin 13y ago
"By transitive property, the only transactions that should count are ones that convert USD to anything, and ones that convert anything to USD." According to US tax law, any accession to wealth is taxable when the gain is realized (yes, there are exceptions to timing and basis). So, if you mined a BTC and spent $1 doing it, then used that 1 BTC to purchase some LTC when the value of the BTC was $100, you gained $99 at the time you traded it for LTC. That gain is realized at the time of the exchange and taxable at that time.
modeless 13y ago
Applying math analogies to tax law is not valid and I'm pretty sure your conclusion is incorrect. Exchanging one cryptocurrency for another would probably be considered a barter transaction, and you would be required to report capital gains as if you had exchanged into USD first and performed the transaction with USD, even if that's not what you did.

gamblor956 13y ago

In certain circumstances, that could be treated as a "like-kind exchange" governed by Sec. 1031 which is not subject to taxation until the property received in exchange is sold (see http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031. http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Se...). However, if that doesn't apply, you should generally owe taxes on any gain resulting from the conversion. Based on the types of properties excluded from like-kind exchange treatment, you should probably have taxable gain (or loss!) from the exchange.

travisp 13y ago

If you exchange one mutual fund for another, you pay capital gains (this is one reason IRAs are so tax advantageous). Typically during bartering, you also owe capital gains even if you never receive USD. It therefore seems possible that you may owe capital gains taxes when you buy Litecoins with Bitcoins. There's generally no "this must become USD" rule before you owe capital gains tax. I am not an accountant or tax lawyer.

deleted 13y ago

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