IRS: Bitcoins are property, not currency


(AP Photo/Rick Bowmer, File)

The Internal Revenue Services (IRS) will treat bitcoin and other virtual currencies like property, not currency. In a notice and Q&A released today, the tax agency noted that although virtual currencies work like "real" money in some environements, "it does not have legal tender status in any jurisdiction."

For federal tax purposes, the IRS says, virtual currency should be treated just like an investment property or stock. "General tax principles applicable to property transactions apply to transactions using virtual currency." Under those principles, an investment in bitcoin would be treated to the same lower taxes that apply to capital gains.

But if you're paid in bitcoins, you still need to report that income.

A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.

The same rules apply if an individual mines bitcoins -- "the fair market value of the virtual currency as of the date of receipt is includible in gross income."

In other words, if your salary gets paid out in bitcoins, that money would be taxed just like a paycheck. But if the value of those bitcoins goes up after you get paid, that extra gain would be taxed just like any other investment, at the regular capital gains rate.

 

 

Andrea Peterson covers technology policy for The Washington Post, with an emphasis on cybersecurity, consumer privacy, transparency, surveillance and open government.
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