Bitcoin is Property, Not Currency, So It's Taxable, Says IRS

[IanDavis]

Bitcoin is Property, Not Currency, So It's Taxable, Says IRS

Get ready to calculate your capital gains, Bitcoin's about to be taxed!

In general, the US government [a href=http://www.nytimes.com/2012/10/25/us/liberty-dollar-creator-awaits-his-fate-behind-bars.html?pagewanted=all]doesn't appreciate[/a] having any currencies domestically competing with the dollar. Now that Bitcoin has been exploding in value and popularity the last few years, a lot of people have been anxiously wondering what the government might say about it. Now, the IRS has broken the silence: [a href=http://www.forbes.com/sites/robertwood/2014/03/25/irs-issues-bitcoin-guidance-its-property-not-currency-and-1099s-are-required/]Bitcoin isn't an actual currency, it's just property[/a].

Apparently, that thing you can use to purchase stuff on [a href=http://www.overstock.com/bitcoin]Overstock.com[/a] and other places isn't actually money, just funfair tokens. As such, the taxman will treat it like stocks, bonds, or any other thing of worth that's not physical. That means that any transactions made using Bitcoin are subject to the same rules and regulations that you'd have to jump through to buy or sell stocks. If you want to purchase a cup of coffee using Bitcoin, you'll now have to work out the capital gains of the transaction and report it on your 1040 at the end of the year.

It seems obvious that Bitcoin might fit the [a href=http://www.merriam-webster.com/dictionary/currency]dictionary definition[/a] of currency, but legal realms are allowed to play by their own rules. While the decree might come across as demeaning to Bitcoin enthusiasts, it might be the lesser of two evils. If it's a legal property, it's taxable, but if it's a legal currency, mining it might be illegal. Personally, I'm holding out until the feds make an official statement on the existence of Dogecoin.

Source: [a href=http://www.forbes.com/sites/robertwood/2014/03/25/irs-issues-bitcoin-guidance-its-property-not-currency-and-1099s-are-required/]Forbes[/a] via [a href=http://www.theguardian.com/technology/2014/mar/25/bitcoin-property-currency-irs-rules]The Guardian[/a]

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[Kross]

So they would not only have to assign a value to this "property" to tax it, they also have to somehow know who owns a particular Bitcoin "wallet"... [http://www.broadstuff.com/uploads/BitcoinII.jpg] Though I suppose the NSA could help track such details with their bulk data collection!

 

[RJ 17]

Because why the hell not? Pretty much everything else is taxed these days, I'm surprised they haven't started taxing breathable air just yet. I hear that's a pretty hot commodity right now.

 

[rasputin0009]

Personally, I'm holding out until the feds make an official statement on the existence of Dogecoin.

I laughed out loud at that comment. I can just imagine younger assistants of older executives at the IRS explaining to them what Dogecoin is.

"It's based off a meme about a dog."

"What's a meme?"

"And the dog is grammatically incorrect."

"What? Get out of my office!"

 

[Bke]

I was honestly expecting the bubble on bit-coin to pop by now. But this, along with some respectable institutions opening up "banks", it's difficult to see how it all might play out. For my part I'm rather wary of all this, I don't think things can go on as they are now before someone decides to throw a wrench in the works; and by the looks of it this will occur before the system collapses.

However a part of me calling back to my digimon playing youth hopes to one day buy things with "bits", which the name here obviously shares a similar root

 

[Redlin5_v1legacy]

I was wondering when the US financial world would speak up.

 

[rofltehcat]

It is not just a problem in the US.
It is basically impossible to declare your taxes on profits from bitcoin trading in Germany as well. In theory it would work just like declaring profits from stock trading but because you don't really have receipts or other necessary documentation, you can't declare it. In the worst case this could mean you'd be committing tax fraud even if you wanted to pay your taxes on those gains.
(note: I didn't trade in bitcoins myself but a close friend did and she phoned the tax office but they didn't even know what bitcoins were and she couldn't produce the necessary documentation of her bitcoin transfers even if she wanted to because of the inherent anonymity of bitcoins.)

 

[synobal]

That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

 

[mike1921]

That isn't going to work for very long. IRS is kidding themselves if they think they can get away with calling it property.

Why? People only use bitcoin as a speculation tool, it more resembles a stupidly risky stock than a currency.

 

[Yal]

The capital gains tax rate is 15%, the foreign currency trading rate is 23%.

Y'all are arguing for the right to pay higher taxes...

 

[Epicspoon]

Time to start storing our bitcoins on an offshore account.

 

[weirdee]

Doesn't the legality of creating more units of a currency fall to the party that is responsible for the currency? If mining Bitcoins is illegal because it's considered a currency, exactly whose jurisdiction does that fall under if there's no government backing it?

They're probably going to continue considering it a tokens system because of that.

 

[Sarge034]

Doesn't the legality of creating more units of a currency fall to the party that is responsible for the currency? If mining Bitcoins is illegal because it's considered a currency, exactly whose jurisdiction does that fall under if there's no government backing it?

They're probably going to continue considering it a tokens system because of that.

It would fall under the jurisdiction of any country you made transactions in. In that regard, being treated as property is the best thing that could have happened here. I don't know about other countries, but in the US it is illegal to produce ANY currency. The Fed holds the rights to mint US currency and the secret service is in charge of pursuing forgers.

Anyway... would cryptocurrencies just die already, please?

 

[Neta]

How is a typical Facebook game's pay-to-win currency regarded? Is that considered currency or property?

 

[chimeracreator]

How is a typical Facebook game's pay-to-win currency regarded? Is that considered currency or property?

It's considered property as far as I know, but that only matters if you resell it. So if you buy an enchanted waraxe of doom for $5 and sell it for $7, you'll be taxed the 15% capital gains rate for the $2 difference which is exactly what they are doing for Bitcoin.

 

[Rpground]

Because this wasn't inevitable...