How Bitcoin Is Taxed

Story by: Matt Hougan

 

One of the most common questions I get from investors is how crypto investments like bitcoin are 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?

It’s actually not that complicated. Let’s clear things up.

(Note: As with any article that discusses tax treatment, the usual disclaimers apply: This is a generalized overview, does not represent advice, and may not apply to your situation. Do not use this article to make tax or investment decisions. Consult your tax expert.)

How Is Bitcoin Taxed?

The good news is that bitcoin and other crypto assets have just about the best possible tax treatment available for long-term investors. According to the IRS’ official guidance on crypto taxation, 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.

For federal taxes, that means you pay a 15% tax on any gains, unless you make a lot of money (more than $479,000 (for married couples) or $425,800 (for individuals)), in which case you pay 20%.

That compares favorably with almost every other alternative investment.

For instance:

Gold: Gold is taxed as a collectible. That means, no matter how long you hold it, the lowest tax you can pay when you sell is 28%.  And yes, this is true even if you hold a gold exchange-traded fund like the SPDR Gold Shares (GLD); there’s nothing magical about wrapping physical gold in an ETF that changes its tax treatment.

Original story: https://www.forbes.com/sites/matthougan/2019/06/11/how-bitcoin-is-taxed/#7fce11436da5

 

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