Jul 29, · If bitcoins are held for less than a year before selling or exchanging, a short-term capital gains tax is applied, which is equal to the ordinary income tax rate for the individual. 11 However. The Internal Revenue Service (IRS) has ruled that Bitcoin and other "convertible virtual currencies" are treated as property, not as currency. There are therefore tax consequences whenever Bitcoin is bought, sold, or traded. This might sound like a minor distinction, but it's not. Jun 11, · If you buy bitcoin and hold it for more than a year, you pay long-term capital gains when you sell. For federal taxes, that means you pay a 15% tax on any gains, unless you make a Author: Matt Hougan.
Bitcoin and sales taxAre There Taxes on Bitcoins?
Here's a primer on tax evasion vs. However, the new tax rules do away with the deduction for personal theft losses. Before the tax law changes , bitcoin owners wanted to know whether they could engage in like-kind transactions with other cryptocurrencies. Now the new tax reform has limited like-kind exchanges to real property, not personal goods. Bitcoin taxes can be a bummer, but at least you can deduct capital losses on bitcoin, just as you would for losses on stocks or bonds.
These losses can offset other capital gains on sales. If you have losses on bitcoin or any other cryptocurrency, make sure you declare them on your tax return and see if you can reduce your tax liability. Bitcoin and other cryptocurrencies are property. Record-keeping is key. Mutual Fund Essentials. Real Estate Investing. Your Money. Personal Finance. Your Practice. Popular Courses. Bitcoin Guide to Bitcoin. Cryptocurrency Bitcoin.
Table of Contents Expand. Understanding Bitcoins. Special Considerations. Key Takeaways Bitcoin is a decentralized cryptocurrency used like fiat currency to buy and services. Article Sources.
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The Internal Revenue Service IRS has ruled that Bitcoin and other "convertible virtual currencies" are treated as property, not as currency. There are therefore tax consequences whenever Bitcoin is bought, sold, or traded. This might sound like a minor distinction, but it's not.
The IRS has indicated that virtual currency is that which doesn't have status as legal tender in any jurisdiction. It's referred to as "convertible" virtual currency if it has an equivalent value in real currency, or if it ever serves in place of real currency.
It can be exchanged into another currency, either real or virtual, and it can be digitally traded. The IRS further indicates that Bitcoin is treated as property and is subject to general tax principles. You must include in your gross income the fair market value of the currency in U. Transactions using virtual currency should be reported in U.
The fair market value of bitcoins can be established by converting them into U. A gain represents income, and income is taxable even if you're paid in virtual currency.
You then own the property for a period of time and you might eventually sell, give away, trade, or otherwise dispose of it. Taxes come due at this point. Four things happen when property is disposed of:. This would be a short-term gain if you held the Bitcoin for a year or less, so it's taxed as ordinary income according to your tax bracket. All your gains would be short-term and you would report them on Form if you elect market-to-market trading.
Any Bitcoin-related expenses would be deductible on Schedule C. You might also find that you're subject to the 3. This tax has applied to investment income since