November 8, 2021
Explaining Cryptocurrency Taxation:
IRS treats cryptocurrency as property and subject to capital gain and loss rules.
- Holding periods of a year or longer have long term capital gain and loss rules and less than one year have short term gains and loss rules.
- Receipt of cryptocurrency for goods and services is ordinary income.
- Donation to a charitable organization is the value on date of donation.
- You can choose sold, transferred or exchanged units based on first-in first-out (FIFO) or use a specifically identifiable unit.
NOTE: Proposed rules, if they become law, would require reporting transactions of $10,000 or more like cash transactions and reporting by “brokers” on Form 1099 B when you transfer, sale or exchange whether you are a regular brokerage or not.
Crypto Currency Taxable Events |
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Action | Is it Taxable? | Is it Reportable? | Calculation of Gain or Loss |
Purchase of a cryptocurrency with US dollars | No | No | No gain or loss |
Transfer of cryptocurrency from an exchange to a wallet you control | No | No | No gain or loss |
Receipt of cryptocurrency as a gift | No | No | No gain or loss |
Sale of a cryptocurrency for US dollars | Yes | Yes | Fair market value of sold less cost basis |
Exchange of one cryptocurrency for another | Yes | Yes | Fair market value of acquired less cost basis of transferred |
Spending cryptocurrency on goods and services | Yes | Yes | Fair market value of received less cost basis of cryptocurrency |
Earned cryptocurrency | Yes | Yes | Fair market value of received – ordinary income |
Cryptocurrency went through a hard fork but you did not receive new cryptocurrency | No | Yes | No gain or loss |
Cryptocurrency went through a hard fork and air drop and you received new cryptocurrency | Yes | Yes | Ordinary income if you can subsequently transfer, sell, exchange or dispose |