Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies?
Scenario:
1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC.
2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC.
Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis between BTC/USD.
Option 2: I’ve incurred a gain, because I traded directly from ETH to BTC, and the relative value between ETH and BTC has gone up.
It's driven off whats called your dollar cost average.
So in your scenario
Buy 1 ETH for say $500, your cost base is $500.
If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at that moment.
If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500 then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100 of capital gains.
What bitcoin is worth is irrelevant until you sell the bitcoin.
EDIT Just assume that every transaction between crypto currencies has an implicit, convert to USD first and then buy the other Crypto with USD.
Also, There is always a USD price, what the price is, is a bit of an art, but its what ever price you can convince the IRS of.
It is the exact same as exchanging mutual funds at your brokerage.
Like an exchange I did just this morning: $10,000 VHDYX -> $10,000 VFIAX.
It creates two orders a sell and a buy. I'm taxed capital gains on the $10k sale (about $600 gain) and the buy has nothing to do with it, until I sell it in 5 years.
Yeah, this is the confusing part for me - moving from BTC to other crypto. Also if it is based on USD price at the time of the transaction...then which one? Coinbase rates can be far different from other exchanges.
Probably good news for investors long term. Bitcoin again continues to grow up and be treated as an equal to bonds, stocks, etc.
If you are a holder, or HODL as the kids say, then you get the benefit of long term rates, if you are a short term trader then you pay the short term capital gains rates, just like any other currency/commodity. trade.
Concrete rules will bring in more conservative money.
This was the last loop hole that some people were concerned about wrt to taxes and virtual currency trading.
without wash trades to pump up its value, what good is bitcoin for??
- bitcoin isn't usable as a transactional currency. it costs $30-40 per transaction. Plus other currencies are gaining steam, and offering other choices for people to transact
- bitcoin isn't rare to be a store of value.....everyday there's a new viable cryptocurrency springing up
- bitcoin isn't safer than dollar.....it can drop 90% in any day; no official entity is going to prop it up and make sure it doesn't crash. it can be banned by countries (and has been by a few)
- bitcoin isn't easy than square cash or visa or wires.....it can take several weeks to send money. plus the transaction fees are high
It’s a double edge sword I guess, because if these are treated as securities - many exchanges will need to subscribe to a lot more regulation and start providing tax paperwork (1099s included) - requiring them to have an SSN on file, removing loads of the anonymity people may be fond of.
But if this bill means that the IRS will only reject like-kind starting January 1, 2018, then those advisors (and their clients) made an expensive error-on-the-side-of-caution, didn't they? Perhaps even to the extent that people who followed that advice might dare to amend their 2016-and-earlier returns?
This year, the case for 'in-kind' exchange might be best for Bitcoin and its baby Bitcoins (Bitcoin Cash and Bitcoin Gold) – the functional differences are initially miniscule, though likely to grow in time.
Are exchanges going to provide us with necessary tax documents in order to pay these taxes? So far all I've found is a terrible csv export that shows the date and amount of purchases of various crypto currencies, but no information at all on the current price at the time of purchase or the amount sold for (this is on Coinbase). I'm starting to get a bit concerned.
I'm planning to use either cointracking.info or bitcoin.tax - they accept these exports, and use their own feeds for determining cost basis at purchase time.
Overall I've been pretty dissappointed by the recommendations put out by the IRS - I ended up having to talk to pay to talk to a tax advisor due to the conflicting advice on the internet.
I purchased $300 BTC the other day on CB and they wanted a $30 transaction fee to withdraw the BTC off their site. I wonder if this fee can also be considered part of the purchase?
Technically there are graphs that recorded the history of price at any point in time. So you could fill your taxes even with that poor csv Coinbase gives. Now 100% aboard with you, exchanges need to get on it and deliver us some workable tax documents. It's already enough of a pain as it is now, no need to make my tax season any worse!
What I find stressful is calculating - not just the 'what was the USD price at the time of the exchange' that has to be manually entered and looked up into the exported CSV spreadsheet... BUT tying that to the movement of coin from Coinbase to the exchange. It's a pain.
I regret using Bittrex, as there's almost no tooling for this available.
A CSV file is a dream compared to what you might have to go through with on normal stocks.
My wife inherited a small amount of telecom stock from her grandmonther who worked for AT&T back in the early days. No records had been kept as to when the stocks were bought (they were part of her salary I think). Of course they were all acquired before the Bell breakup. So what she inherited was a big mess of baby bells and about once a year or so one of them will be bought out and they'll do a stock merger and automatically sell any fractional shares left after the merger so we have to pay the Capital Gains on that sale. I am still not sure how someone without a Lexus Nexus account is supposed to calculate the net profit on those shares.
Thus far most of them have been small and we've been calling the entire thing profit (purchase price of $0) but I know one of these days we're going to have to do it for real.
While it was deemed to be treated as property, IRS never gave guidance on ability to treat it as like kind transaction. Accountants have been asking for this clarification for years.
SEC treating ICO as a security. IRS needs to come out with more guidance, but doing taxes is going to be a pain with crypto to crypto. Not looking for trouble with IRS, especially when gains were plentiful for so many this year.
Pay your taxes, you don’t want to be the example the IRS makes. PR not going to look good for people in crypto, “majority of crypto owners refusing to pay taxes”.
> IIRC like-kind treatment was never made available, with the new tax plan or without.
They never clarified and now they'll never have to.
Like-kind treatment is given to property, with specific exemptions made by the IRS. If the IRS never made an exemption, but it did designate cryptocurrencies as property, then like-kind treatment applies.
Given that cryptographic hashes are the only thing trading in any distributed ledger technology, it doesn't matter what the name plastered on the network is, it would fit existing regulations and case law around like-kind exchange.
Now with the new law change from Congress, the agency or the courts will never have to deal with it if they don't challenge 2017 tax filings.
Can somebody explain something to me... I haven't been participating in the Bitcoin/cryptocurrency movement for better or worse, just following it from afar:
I thought the premise of these currencies was to avoid government and banking oversight/control... but with both the SEC and IRS putting controls around virtual currency (which I think we all expected to happen), how does that change the original inspiration? Do these virtual currencies become relegated to the same fate as all other currencies?
Was seeing this happen part of the experiment of crypto-currency as well? I keep trying to figure out the real motivation behind the basically unknown origins of the inventors (e.g. Satoshi Nakamoto).
- The fed does not exercise control over Bitcoin directly, so Bitcoin is still fundamentally different than fiat currencies
- All fiat onramps into crypto are controlled by governments, which is one way to regulate it (KYC, AML)
- You still have to follow the rules for your country, and if the government finds out you haven't, it can censure you; with crypto, it can be harder to see if someone followed the rules, but it's not impossible with the pseudonymous approaches used by most cryptocurrencies today
The vision behind crypto is more decentralized than the actual currency is. Some may applaud the SEC stepping in to combat shady ICO's, others see it as overreaching death throes by an increasingly anxious dinosaur.
Bitcoin was set up to disproportionally reward the early adopters. The early adopters were cyberpunks, cryptography enthusiasts, and darknet merchants. Since we can only speculate about the inventor(s), the motivation can range from a US-hostile government wanting to loosen the grip the US has on fiat and digital currency, to Libertarian Anarchists wanting to switch trust from bank-bailing-out governments to technology.
It seems one goal "to protect Bitcoin from the select few" is already close to impossible, as Bitcoin shows a highly skewed power distribution (a select few has thousands of Bitcoin).
I also wonder how this will deal with crypto coins that are specifically designed to avoid monitoring.
Seeing as it's insanely easy to set up an alternate address in any coin, and that whatever the US government knows of my coins could just be a tiny percentage.. how would they know how much to tax me on?
It seems so difficult as to be almost useless. Makes me think they'd be better off just considering it a foreign coin, and only tax what goes into and out of USD. I dunno, clearly I'm out of my element haha.
I don't think it was this change that put that to rest. I doubt Satoshi ever foresaw that BTC transaction times and fees would grow so large that you essentially cannot use it for everyday purchases. It is still not feasible to regulate BTC itself. They only really only regulating the exchanges.
Wash sale rules still apply (as has been noted elsewhere). But it's pretty likely this government will start to aim for that as well.
The only policy lens by which this current congress's bill makes sense is on that "rewards existing businesses moving into new markets" as opposed to "new businesses competing with existing via new markets." And while I'm not a fan of the bill or its primary authors, I'm simply not able to accept the idea that they don't have a policy direction.
Man, like-kind doesn’t even allow silver to gold. I can’t imagine even the most liberal interpretation would allow trading between different blockchains.
I'm American. I used to live in China. I bought some bitcoin in China. Later I changed some of that bitcoin for an altcoin. I now live in Japan and sometimes do more alt coin exchanges. How if at all am I taxed?
You should honestly consult a tax professional about this, as it's not a good idea to get tax advice from strangers on the internet.
But according to the IRS, you are only taxed at time of disposal when capital gains were realized. I am not at all familiar with Chinese or Japanese tax law, so I couldn't tell you what your liabilities might be there.
If I buy N btc every month for different price and then sell some fractional amount, what would be the cost base? It appears to be possible to name the lot being sold but I can't find the consensus, internet in general advises FIFO.
If it's like stocks, I reckon you can specify which lot is getting sold. That was one of the things up for debate under the GOP proposed tax reforms. FIFO requirement for sales didn't make it into the final bill.
This is the best resource I have found at a quick search. The answer is simply it depends on how you setup your cost basis.
[+] [-] stakecounter|8 years ago|reply
Scenario:
1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC.
2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC.
Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis between BTC/USD.
Option 2: I’ve incurred a gain, because I traded directly from ETH to BTC, and the relative value between ETH and BTC has gone up.
[+] [-] chollida1|8 years ago|reply
So in your scenario
Buy 1 ETH for say $500, your cost base is $500.
If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at that moment.
If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500 then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100 of capital gains.
What bitcoin is worth is irrelevant until you sell the bitcoin.
EDIT Just assume that every transaction between crypto currencies has an implicit, convert to USD first and then buy the other Crypto with USD.
Also, There is always a USD price, what the price is, is a bit of an art, but its what ever price you can convince the IRS of.
[+] [-] jermaustin1|8 years ago|reply
Like an exchange I did just this morning: $10,000 VHDYX -> $10,000 VFIAX.
It creates two orders a sell and a buy. I'm taxed capital gains on the $10k sale (about $600 gain) and the buy has nothing to do with it, until I sell it in 5 years.
[+] [-] jclardy|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] chollida1|8 years ago|reply
If you are a holder, or HODL as the kids say, then you get the benefit of long term rates, if you are a short term trader then you pay the short term capital gains rates, just like any other currency/commodity. trade.
Concrete rules will bring in more conservative money.
This was the last loop hole that some people were concerned about wrt to taxes and virtual currency trading.
[+] [-] matchcohnn|8 years ago|reply
- bitcoin isn't usable as a transactional currency. it costs $30-40 per transaction. Plus other currencies are gaining steam, and offering other choices for people to transact
- bitcoin isn't rare to be a store of value.....everyday there's a new viable cryptocurrency springing up
- bitcoin isn't safer than dollar.....it can drop 90% in any day; no official entity is going to prop it up and make sure it doesn't crash. it can be banned by countries (and has been by a few)
- bitcoin isn't easy than square cash or visa or wires.....it can take several weeks to send money. plus the transaction fees are high
[+] [-] nerdwaller|8 years ago|reply
[+] [-] xur17|8 years ago|reply
[+] [-] gojomo|8 years ago|reply
This year, the case for 'in-kind' exchange might be best for Bitcoin and its baby Bitcoins (Bitcoin Cash and Bitcoin Gold) – the functional differences are initially miniscule, though likely to grow in time.
[+] [-] thefreeman|8 years ago|reply
[+] [-] xur17|8 years ago|reply
Overall I've been pretty dissappointed by the recommendations put out by the IRS - I ended up having to talk to pay to talk to a tax advisor due to the conflicting advice on the internet.
[+] [-] nawtacawp|8 years ago|reply
[+] [-] fataliss|8 years ago|reply
[+] [-] mancerayder|8 years ago|reply
What I find stressful is calculating - not just the 'what was the USD price at the time of the exchange' that has to be manually entered and looked up into the exported CSV spreadsheet... BUT tying that to the movement of coin from Coinbase to the exchange. It's a pain.
I regret using Bittrex, as there's almost no tooling for this available.
[+] [-] jandrese|8 years ago|reply
My wife inherited a small amount of telecom stock from her grandmonther who worked for AT&T back in the early days. No records had been kept as to when the stocks were bought (they were part of her salary I think). Of course they were all acquired before the Bell breakup. So what she inherited was a big mess of baby bells and about once a year or so one of them will be bought out and they'll do a stock merger and automatically sell any fractional shares left after the merger so we have to pay the Capital Gains on that sale. I am still not sure how someone without a Lexus Nexus account is supposed to calculate the net profit on those shares.
Thus far most of them have been small and we've been calling the entire thing profit (purchase price of $0) but I know one of these days we're going to have to do it for real.
[+] [-] kristallizer1|8 years ago|reply
[+] [-] throwaway30yo|8 years ago|reply
[+] [-] jMyles|8 years ago|reply
[deleted]
[+] [-] withdavidli|8 years ago|reply
SEC treating ICO as a security. IRS needs to come out with more guidance, but doing taxes is going to be a pain with crypto to crypto. Not looking for trouble with IRS, especially when gains were plentiful for so many this year.
Pay your taxes, you don’t want to be the example the IRS makes. PR not going to look good for people in crypto, “majority of crypto owners refusing to pay taxes”.
[+] [-] 1053r|8 years ago|reply
"Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?"
"A-6: Yes." (quote continues, but there you go).
I have no idea how folks came to the conclusion that 1031 swaps were ever acceptable, but it's always been clear that the IRS did not think they were.
TL;DR Don't get your tax advice from Reddit. (Or random commenters on hacker news, for that matter.)
[+] [-] Gargoyle|8 years ago|reply
[+] [-] g09980|8 years ago|reply
[+] [-] ringaroundthetx|8 years ago|reply
They never clarified and now they'll never have to.
Like-kind treatment is given to property, with specific exemptions made by the IRS. If the IRS never made an exemption, but it did designate cryptocurrencies as property, then like-kind treatment applies.
Given that cryptographic hashes are the only thing trading in any distributed ledger technology, it doesn't matter what the name plastered on the network is, it would fit existing regulations and case law around like-kind exchange.
Now with the new law change from Congress, the agency or the courts will never have to deal with it if they don't challenge 2017 tax filings.
[+] [-] sixdimensional|8 years ago|reply
I thought the premise of these currencies was to avoid government and banking oversight/control... but with both the SEC and IRS putting controls around virtual currency (which I think we all expected to happen), how does that change the original inspiration? Do these virtual currencies become relegated to the same fate as all other currencies?
Was seeing this happen part of the experiment of crypto-currency as well? I keep trying to figure out the real motivation behind the basically unknown origins of the inventors (e.g. Satoshi Nakamoto).
[+] [-] nemild|8 years ago|reply
- The fed does not exercise control over Bitcoin directly, so Bitcoin is still fundamentally different than fiat currencies
- All fiat onramps into crypto are controlled by governments, which is one way to regulate it (KYC, AML)
- You still have to follow the rules for your country, and if the government finds out you haven't, it can censure you; with crypto, it can be harder to see if someone followed the rules, but it's not impossible with the pseudonymous approaches used by most cryptocurrencies today
[+] [-] alergico|8 years ago|reply
Bitcoin was set up to disproportionally reward the early adopters. The early adopters were cyberpunks, cryptography enthusiasts, and darknet merchants. Since we can only speculate about the inventor(s), the motivation can range from a US-hostile government wanting to loosen the grip the US has on fiat and digital currency, to Libertarian Anarchists wanting to switch trust from bank-bailing-out governments to technology.
It seems one goal "to protect Bitcoin from the select few" is already close to impossible, as Bitcoin shows a highly skewed power distribution (a select few has thousands of Bitcoin).
[+] [-] notheguyouthink|8 years ago|reply
Seeing as it's insanely easy to set up an alternate address in any coin, and that whatever the US government knows of my coins could just be a tiny percentage.. how would they know how much to tax me on?
It seems so difficult as to be almost useless. Makes me think they'd be better off just considering it a foreign coin, and only tax what goes into and out of USD. I dunno, clearly I'm out of my element haha.
[+] [-] CoryG89|8 years ago|reply
[+] [-] KirinDave|8 years ago|reply
The only policy lens by which this current congress's bill makes sense is on that "rewards existing businesses moving into new markets" as opposed to "new businesses competing with existing via new markets." And while I'm not a fan of the bill or its primary authors, I'm simply not able to accept the idea that they don't have a policy direction.
[+] [-] drvdevd|8 years ago|reply
[+] [-] sneak|8 years ago|reply
This article seems to have an agenda.
[+] [-] kindfellow92|8 years ago|reply
https://www.irs.gov/pub/irs-drop/n-14-21.pdf
[+] [-] cik2e|8 years ago|reply
[+] [-] fpisfun|8 years ago|reply
[+] [-] IIAOPSW|8 years ago|reply
I'm American. I used to live in China. I bought some bitcoin in China. Later I changed some of that bitcoin for an altcoin. I now live in Japan and sometimes do more alt coin exchanges. How if at all am I taxed?
[+] [-] notjesse|8 years ago|reply
But according to the IRS, you are only taxed at time of disposal when capital gains were realized. I am not at all familiar with Chinese or Japanese tax law, so I couldn't tell you what your liabilities might be there.
[+] [-] yks|8 years ago|reply
[+] [-] froindt|8 years ago|reply
This is the best resource I have found at a quick search. The answer is simply it depends on how you setup your cost basis.
https://www.investopedia.com/terms/a/averagecostbasismethod....
[+] [-] antihero|8 years ago|reply
[+] [-] throwaway312367|8 years ago|reply
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] unknown|8 years ago|reply
[deleted]
[+] [-] unpwn|8 years ago|reply