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> let's say that i purchase a bitcoin for $150. this is my cost basis. the next day, the bitcoin appreciates in value to $200. i use this single bitcoin to purc
by 7Figures2Commas 13y ago
> let's say that i purchase a bitcoin for $150. this is my cost basis. the next day, the bitcoin appreciates in value to $200. i use this single bitcoin to purchase a $200 camera. in this transaction, i have spent $200, but i only paid $150 for it. this means that i have essentially received $50 for free. the IRS wants to tax this "free" income. under IRS guidance, this additional $50 that you got "for free" is taxed at a capital gains rate (which is up to 20%).
There's one huge problem with your example: you have a short-term capital gain, not a long-term capital gain. Short-term capital gains are taxed at the same rate as your ordinary income.
- beachriot 13y agoyes, i am aware of the holding period necessary to be able to use capital gains rate. i left it out merely to simplify the example for non-tax folk. but if you understand tax, then instead of, "the next day," my example should say, "a year and a day later."