IRS answers bitcoin tax questions, says virtual currency is property, not money
The virtual currency bitcoin is actually considered property, not money, for tax purposes, the Internal Revenue Service announced Tuesday.
That means gains from buying low and selling high are taxed in the same way as gains on other property, the New York Times’ DealBook blog (reg. req.) reports. Initial value is determined based on what the virtual currency was worth in a fair-market transaction at the time it was acquired.
So will a lower tax rate for capital gains apply? Not necessarily, the IRS says.
Image from Shutterstock.
“A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets,” the agency explains in an notice (PDF) attached to a Tuesday press release.
“A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset.”
Those who keep records to support treating bitcoin as a capital asset could get a tax break, notes the Wall Street Journal (sub. req.). But the required paperwork could be onerous for some individuals. For example, the IRS announcement means those who use the virtual currency for retail purchases will owe tax on every completed transaction.
Today’s IRS guidance also applies to previous tax years.
