Bitcoin and other cryptocurrencies raise numerous tax issues, including how they are taxed, when cryptocurrencies are reportable on FBARs, and whether cryptocurrencies qualify for favorable tax deferral strategies such as like-kind exchanges.
For now, the IRS will treat cryptocurrencies as property and not as currency, resolving significant uncertainty and avoiding the complex rules that can apply to the taxation of currency transactions. Like other property, a taxable event therefore occurs upon selling or trading cryptocurrency whether privately or through an exchange. A taxable event will also occur if one uses Bitcoin or another cryptocurrency to buy goods or in another similar transaction. And those that are mining cryptocurrencies will owe taxes when they are awarded a coin or portion of a coin.
Because the IRS classifies cryptocurrencies as property, they are treated like other capital assets. Realized and recognized gains are subject to the U.S. capital gains tax. If the holding period is one year or less, the gains are taxed at short-term capital gains rates, which are the same as ordinary income tax rates. If the holding period is more than a year, then the gains are taxed at the preferential long-term capital gains rates. Like other capital assets, the gain is the difference between the amount realized and the owner’s basis (typically the acquisition price).
Gain for the sale or exchange of cryptocurrencies is reported on Form 8949, Sales and Other Dispositions of Capital Assets, on the owner’s personal income tax return. This will usually be due on April 15 of the year following the sale or exchange, subject to extensions or other provisions that might change the due date of that return.
One important caveat here is that dealers or full-time cryptocurrency traders may be subject to different rules.