Editor’s Note: This article has bot repurposed spil part two of our four-part series. The concentrate of this section is to discuss the fiscal responsibilities one could expect when investing te Bitcoin and similar cryptocurrencies.
Ter published guidance, the IRS has clearly stated that convertible virtual currencies, such spil Bitcoin, are treated spil property for tax purposes, and should not be treated spil foreign currency.
Spil a property, it will be subject to the same general rules regarding when it should be included ter gross income, the character of build up or loss, the fundament of the Bitcoin, etc.
Read on spil wij explore the fiscal hurdles one could expect when investing ter Bitcoin.
How to Invest ter Bitcoin
One of the most common uses of Bitcoin includes purchase for investment purposes. If a taxpayer purchases Bitcoin for investment purposes, the tax treatment is similar to buying and selling stock.
The taxpayer’s fundament te the currency is the adjusted fundament (the cost poot + commissions) or other purchase fees. The taxpayer’s holding period starts on the date he or she purchases the Bitcoin.
The sale or exchange of the purchased Bitcoin causes the taxpayer to recognize a capital build up or loss. Individuals report capital build up or loss from the sale of Bitcoin on Form 8949 and Schedule D.
John bought one Bitcoin for $800 on January 14, 2014, and paid a $Ten purchase toverfee. Thus, John’s onderstel te the bitcoin is $810.
On April 1, 2018, John sold the Bitcoin for $1,100. John recognizes a short-term capital build up of $290 – this is the difference inbetween his adjusted onderstel ter the Bitcoin and the amount he realized from the sale.
He reports the transaction on Form 8949 and carries the total of his short-term build up or loss from all transactions to Schedule D.
Decoding Bitcoin Stock Value
Albeit buying and selling Bitcoin for investment purposes is similar te nature to the buying and selling of stocks, Bitcoin is not a stock or security any more than it is a foreign currency. Thus, the sales transactions will not be reported to the IRS and to the taxpayer on Form 1099-B.
Furthermore, the sale of Bitcoin is not subject to the same anti-abuse rules, such spil the wash sale rules under §1091, which prevent a taxpayer from recognizing a loss on the sale of stock or securities if he or she purchases substantially identical stock or securities within 30 days before or after the sale.
Because those who purchase are not likely to receive information documents, it is especially significant that taxpayers who invest te Bitcoin maintain a detailed record of their virtual currency transactions te order to ensure that they decently report the build up or loss on their income tax comes back.
Bitcoin Income Next Steps
You have officially reached the third of four parts ter our Bitcoin series. Te our final article Bitcoin, Taxes &, the Modern Entrepreneur, our Tax Pros will review self-employment screenplays where Bitcoin is taxed.
If you find yourself wondering about how your own cryptocurrency investments will be taxed, meet with your local H&,R Block Tax Voor or join the conversation te our H&,R Block Community.
Learn how to maximize your salary and benefits with more information on fresh job tax forms and deductions from the tax experts at H&R Block.
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Learn how to determine the fundament of real property with improvements with help from the tax experts at H&R Block.
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Mike Slack, JD, EA, is a senior tax research analyst at The Tax Institute. Mike leads research teams focused on business and investment tax issues.