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.

Cryptocurrency miners must recognize ordinary income equal to the fair market value of the cryptocurrency at the time it is mined.bitcoin

  1. 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.
  2. 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)

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