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Bitcoin Government United States

IRS: Bitcoin Is Property, Not Currency 273

Posted by Soulskill
from the cryptoproperty-doesn't-have-the-same-ring-to-it dept.
An anonymous reader sends this news from Bloomberg: "The U.S. government will treat Bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue. Today's IRS guidance will provide certainty for investors, along with potential income-tax liability. Under the ruling, purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop. ... Under the IRS ruling, Bitcoin investors would be treated like stock investors. Bitcoins held for more than a year and then sold would pay the lower tax rates applicable to capital gains — a maximum of 23.8 percent compared with the 43.4 percent top rate on property sold within a year of purchase. For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains. They can also subtract up to $3,000 of capital losses a year from ordinary income.'"
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IRS: Bitcoin Is Property, Not Currency

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  • by JustNiz (692889) on Tuesday March 25, 2014 @04:02PM (#46577067)

    ...as you can offset a drop in the value of your bitcoins as a tax deduction.

    • Re: (Score:2, Offtopic)

      I had to type in a CAPTCHA to access Mt Gox.

      And... Summoned the old ones!

      "tyltylnc tymrkth"

    • by Gothmolly (148874) on Tuesday March 25, 2014 @04:14PM (#46577197)

      Only if you sell them at a loss. So if you want to take a loss in order to deduct part of that loss, knock yourself out. That'll show them.

      • Re: (Score:2, Insightful)

        by VortexCortex (1117377)

        Oh that's great news! Because that means I can give the property value assessor the finger! I don't owe the IRS any increased taxes due to my property's appreciation since I haven't sold it at a gain! WOW!

      • by beelsebob (529313)

        And only if you had made a capitol gain somewhere else.

      • by PRMan (959735)

        Yes. But if you had to sell a couple to pay for Christmas and they were lower in January than when you bought them, it's nice to take that loss on your taxes.

        Also, this confirms that if you keep your bitcoins over a year and then they go up enough for you to retire, you can live on them tax free the rest of your life (unless the lowest tier changes rates).

        • Re: (Score:2, Funny)

          by BasilBrush (643681)

          I wonder if anyone is really stupid enough to base their retirement plans on bitcoin investment.

    • by lgw (121541) on Tuesday March 25, 2014 @04:15PM (#46577217) Journal

      ...as you can offset a drop in the value of your bitcoins as a tax deduction.

      As most of us who went through the dot-bust can tell you: only if you have gains to offset. If you have net losses, you can only take them at $3000/yr.*

      TFA doesn't seem to have a link to the actual IRS ruling - WTF Bloomberg? New to the intarwebs? We do links here!

      Not all capital gains are the same. If BTC is treated like stocks, that's great - most people will pay 15%* on long-term gains. Compare that to gold/silver, which are taxed as collectibles, with a 28% gains rate!*

      *Don't take tax advice from random internet strangers like me - consult your tax professional.

    • by bloodhawk (813939)
      Not a bitcoin fan but this seems pretty AWEFUL news for bitcoins not good. Now everytime you use a coin to purchase something you have created a taxable event. Purchase a thousand dollar equivalent item and you are potentially up for an additional $500 (minus costs) in real currency as capital gains tax
      • by Talderas (1212466)

        It's exceedingly awful news. It may grant bitcoin legitimacy but it greatly trashes its value as a currency. In order to be legally compliant, you need to keep records of the price at which you acquired it. Use it to buy something and now you need to get a FMV for bitcoin when you make the purchase so that you can report capital gains or losses. Failure to do this and you're suddenly engaging in tax evasion.

  • by ClickOnThis (137803) on Tuesday March 25, 2014 @04:15PM (#46577219) Journal

    In effect, the IRS is treating Bitcoin like any other "foreign" currency, which amounts to the same thing as treating it as property. When you sell (i.e., spend) Bitcoin, you're realizing a profit or loss, depending on the value it had when you received (bought) it, compared to the value it had when you sold it.

    IANAA, but as I read this, it means that if you get paid for work in Bitcoin, you would pay tax on its value at that time, and that value would be considered your cost-basis for future sales of Bitcoin, so you don't get taxed twice on the cost-basis amount.

    • by hoeferbe (168081)
      ClickOnThis wrote [slashdot.org]:

      In effect, the IRS is treating Bitcoin like any other "foreign" currency, which amounts to the same thing as treating it as property.

      I don't believe that is right. From my understanding of the 2 possible ways of treating Bitcoin, it can either be treated like a commodity (property) and taxed at capital gain rates or it could be treated like a currency with gains taxed at the normal rates -- but with a $200 gain per incident exemption. Please see the "Characterization of Income from Bitco

      • by Trepidity (597)

        Either way would make it inconvenient for those wanting to follow the rules, but if they had treated it like a foreign currency at least the $200 gain exemption would have taken the burden of keeping records off of many purchases.

        True, though it would've made it worse for people with large amounts. With this ruling, gains realized after >1 yr of holding bitcoin are taxed at capital-gains rates, while with the alternative ruling that bitcoin is currency, large gains would've been taxed at ordinary income

      • Thanks for the correction.

  • Its just a barter system, so that makes sense.

    Still dont like the idea of the Feds trying to tax me more, but the concept of property is sound at least.

    • Its just a barter system

      This applies to any currency, unless you are dealing in chocolate coins.

      • by bobbied (2522392)

        Its just a barter system

        This applies to any currency, unless you are dealing in chocolate coins.

        Actually, I like your example.. BitCoins are almost EXACTLY like trading chocolate coins, except they are not filled with chocolate..

    • Aren't bitcoins a finite resource? I mean, that would make "all bitcoins" more along the lines of "all the real estate in the US". You can trade it, it changes value, but it isn't exactly like currency, even though both can be traded and both have value.
  • by Primate Pete (2773471) on Tuesday March 25, 2014 @04:29PM (#46577351)
    I would think this is really bad news in disguise for bitcoin, because it discourages the use of bitcoin for commerce both because of the tax issue and because of the reporting requirements. (Who wants to deal with computing a wash sale just to buy a cup of coffee?) If people are inspired to sit on bitcoin until they cross the 1-year capital gains threshold, that behavior change could move bitcoin one step away from use as a currency, and put it in the same illiquid category as gold or bearer bonds.
    • I would think this is really bad news in disguise for bitcoin, because it discourages the use of bitcoin for commerce both because of the tax issue and because of the reporting requirements. (Who wants to deal with computing a wash sale just to buy a cup of coffee?)

      If they'd ruled it was a currency, you'd still have to deal with taxes and a raftload of paperwork (plus a whole slew of specific regulations for currency exchange to boot). You can't have a legitimate medium of exchange *and* be free of taxes and paperwork, they're (if you'll pardon the pun) two sides of the same coin. That's been one of the deep flaws in the thought processes of Bitcoin fanboys all along - the failure the recognize that along with real world legitimacy comes all the other baggage of the real world.

    • It could be coded into the software that does the transaction. Your exchange could just email you a tax form in Jan the same way your bank or stock exchange does.
      • by PRMan (959735)
        What exchange? Many people trade them in person. But yeah, now that there is guidance, it would be nice to get a tax form from the exchanges.
    • The really attention-grabbing thing about the IRS guidance [irs.gov] is Question 8 under the FAQ, which reads:
      Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer
      resources to validate Bitcoin transactions and maintain the public Bitcoin
      transaction ledger) realize gross income upon receipt of the virtual currency
      resulting from those activities?


      A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value
      of the virtual currency as of
  • Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.

    That seems very common-sensy, but it just raises questions/flames about what you're contrasting it to. Right away, you ought to be thinking, "If I did the same thing with Euros or Pesos, how would that differ?"

    If Bitcoin were treated as a foreign currency, ordinary -- not capital gains -- tax rates would apply. Losses would be easier to deduct, howeve

  • by ArcadeMan (2766669) on Tuesday March 25, 2014 @05:02PM (#46577697)

    Did they just write "Bitcoin" in the new law or something more general that can include anything? Otherwise, Bitcoin is now regulated but LiteCoin, DogeCoin and all the other coins are not.

  • What would your cost basis be for miners? Could you count the cost of electricity and equipment or would it be considered zero?
    • I don't see why it would be any different than any other business that writes off the cost of electricity and equipment.
  • Gold is taxed exactly the same way.

  • How does one determine which specific Bitcoin (or fraction) was spent from one's owned pool to determine whether any appreciation is long-term or short-term? Is it a record-keeping thing only, much like tossing pennies in a jar every day and recording it in a ledger, then taking random pennies back out to pay and noting that they're the oldest, whether or not they are (or can be proven to be)? I foresee IRS challenges around long-term vs. short-term in audits, especially for folks with lots of transaction
    • Not if they treat it as a collectible.

    • It would have seemed sane to only tax ***coins when cashed out or exchanged for a good.

      An analogy I heard for the current IRS guidance is that it's like taxing furniture makers for the full price of a couch (minus material + labor costs) when they combine wood, cloth, and padding. Furthermore they must calculate the price based on the current sale price of the couch in furniture stores.

    • There's specific rules governing this with stocks. First-In-First-Out would mean your appreciation (and gain/loss) is based on the oldest coin still in your wallet. Last-In-Last-Out does the opposite, and all the numbers are based on the coin you purchased most recently. You could also figure the average cost of the coins in your wallet and use that as your basis. You get to pick which method you use.

      It looks like you could switch from LIFO to FIFO and back from year to year. The sole restriction seems to b

  • by blackicye (760472)

    So if you take payments in bitcoin, they will be taxed as property, and not as currency?

    Interesting, and messy.

    • There's no non-messy way to do this.

      Either all your transactions get taxed (the way they picked), or you always pay the high personal income tax rate.

      If virtual currencies stay popular it's highly likely that Congress will write some new rules that make more sense, but also force virtual currencies more into the normal, highly regulated, fairly transparent (especially to cops) financial system.

  • by Garabito (720521) on Tuesday March 25, 2014 @07:19PM (#46579113)
    "I don't believe in imaginary property" was a popular anti-IP catchphrase here on Slashdot. It seems like it could apply here too.

"It's like deja vu all over again." -- Yogi Berra

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