Bitcoin, if you’ve been paying attention as of late, has been all the rage – it’s up, it’s down, it’s something we wish we’d invested in back in 2016. But now it’s in the news for another reason: Uncle Sam wants his cut.
Recently, the Internal Revenue Service proved victorious in a case against Coinbase. Their victory gave the IRS access to owner information for cryptocurrency transactions between 2012 and 2015 over $20,000 (this includes Bitcoin).
In 2014, the IRS ruled that Bitcoin was an intangible asset. This means that if you sell it, you must recognize it as a capital gain or a capital loss on that transaction. Losses are figured into the total of other capital gains in any given year (plus an additional $3,000).
If you lose, the write-off takes a while (a double loss of sorts). But if you have a gain, that money is immediately taxable at the capital gains rate. You must also report each gain or loss when you use Bitcoin to purchase a service or pay for a product.
With the recent tax reform legislation set into place, real estate professionals are expecting a slew of questions from buyers, sellers, and their peers. The new tax code will affect many areas of life, including (but not limited to) owned homes and cryptocurrency holdings. In the new tax plan, if you exchange one type of cryptocurrency for another, that transaction is taxable. But that’s not the only recent addition. Bitcoin introduced a dividend of Bitcoin Cash earlier this year on August 1. It’s not really a dividend, however – it’s not interest and it’s not a tax deferred split, either. On your tax return, it’s reported as “other income.” This holds true even in cases where you didn’t claim your Bitcoin Cash or didn’t sell it.
Some believe that the IRS will provide amnesty for folks who didn’t report their taxable Bitcoin transactions between 2012-2015, which may allow for people to sidestep monetary penalties. But it’s not set in stone. So, if you have 2016 or 2017 transactions, it’s a smart move to make sure you’re in compliance. As Bitcoin’s popularity grows, the more it’ll garner the IRS’s attention. And the more they’ll scrutinize the holdings of anyone who has tried to hide their profits. Javier Vivas, director of economic research for Realtor.com, advises that now is a better time than ever to keep your tax professionals close by.
Staying up on the changing trends of Bitcoin, and the laws surrounding it, helps avoid the waving of any inadvertent red flags. According to Selma Hepp, chief economist for Pacific Union International, “It’s important to stay informed and understand the current issues. For example, tax reform is very complex. There will be a lot of misunderstandings around the tax reform if it gets passed.” The IRS is pulling all the stops, so be sure to chat with your accountant about how to file properly.
Jennifer Egbert is a Realtor at RE/MAX Alliance Downtown in Boulder and specializes in Luxury neighborhoods, home builders and current market conditions. To learn more about the Boulder real estate market, visit jenniferegbert.com, e-mail [email protected] or call 303.619.3373.