Cryptocurrency and Taxes
IRS Notice 2014-21 holds that for federal tax purposes, cryptocurrencies are treated as personal property, like a painting or a car. While this determination does not seem like a logical fit, until the IRS reverses this decision and recognizes bitcoin and other cryptocurrencies as currency, there are tax implications investors should consider.
- Whenever cryptocurrency is spent on goods or services, the spender must recognize taxable income (or a loss) on the difference between the fair market value at the time it is spent and the tax basis of the currency at the time it was acquired.
- If a holder dies, because the cryptocurrency is property, the beneficiaries of his estate will receive a step-up (or step-down) in basis at the fair market value of the cryptocurrency on his or her date of death.
If you have a question about how to effectively plan for your cryptocurrency holdings and the tax implications, do not hesitate to contact us. (Amanda M. Kita, Esquire, Feb. 12, 2018)