The Taxation of Digital Currency: What is it?
How are crypto investments, like bitcoin, taxed? There seems to be a great deal of confusion, perhaps because of the different names people use for this new asset class.
- If bitcoin is a cryptocurrency … is it taxed like currency?
- If bitcoin is “digital gold” … is it taxed like gold?
- If bitcoin is a commodity … is it taxed like oil?
The good news is that bitcoin and other crypto assets have just about the best possible tax treatment for long-term investors. According Forbes, in the U.S. crypto is taxed as “property,” which is just a fancy way to say it's taxed like a stock. If you buy bitcoin and hold it for more than a year, you pay long-term capital gains when you sell. It’s another story for traders moving in and out of crypto assets...one for another day.
As clear as the core guidelines for long term crypto taxation are, there are a few areas where more guidance is needed. Fortunately, the IRS has announced plans to offer additional guidance soon and we will bring it to you when available.
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