For federal tax purposes, virtual currency is treated as property. The general tax principles applicable to real estate transactions apply to transactions that use virtual currency. An official website of the United States Government. The IRS takes the position that the virtual currency is property for federal income tax purposes.
Unfortunately, that means that you must recognize taxable gains or losses every time you exchange virtual currency for goods or services or for U.S. cryptocurrencies. The tax rates for cryptocurrencies depend on your income, your tax status, and how long you had your cryptocurrency before selling it. If you had it for 365 days or less, then you pay taxes on short-term earnings, which are equivalent to income taxes.
If you had it for longer, then you pay taxes on long-term profits. The virtual currency retention period that you receive as a gift includes the time that the person from whom you received the gift kept the virtual currency. Virtual currency is treated as property and the general tax principles applicable to real estate transactions apply to transactions that use virtual currency. If you don't identify specific units of virtual currency, the units will be considered to have been sold, exchanged, or otherwise disposed of in chronological order, starting with the first unit of virtual currency that you bought or purchased; that is, in order of entry, first out (FIFO).
You can identify a specific unit of virtual currency by documenting the unique digital identifier of the specific unit, such as a private key, a public key and an address, or by using records that show the transaction information of all the units of a specific virtual currency, such as Bitcoin, stored in a single account, wallet, or address. Also known as cryptocurrencies, virtual currencies can be transferred, stored, or traded electronically. For example, when an investor exchanges one virtual currency for another, or a virtual currency is used to pay for the purchase of an NFT, the applicable tax rules will apply to “bartering transactions” involving the exchange of properties (or services). IRS Guide to Virtual Currency Taxation (Self-Study) This course covers the new guide to virtual currency taxation, frequently asked questions (frequently asked questions) and what you need to know as a tax professional or personal financial planner.
The charitable contribution deduction is usually equal to the fair market value of the virtual currency at the time of the donation if you've had the virtual currency for more than a year. Your profit or loss will be the difference between your adjusted base in the virtual currency and the amount you received in exchange for the virtual currency, which you must declare on your U.S. federal income tax return. UU.
If you held the virtual currency for a year or less before selling or exchanging the virtual currency, you will have a short-term capital gain or loss.
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