Crypto gains question......

[Bluegrass]

Let’s say you buy a million dollar diamond ring from jeweler who accepts crypto.

You have crypto now worth 1M and your basis is 200K.

I know crypto is taxed as property and would be subject to long term or short term capital gains depending on your period of ownership.

In my example, you’re effectively making a purchase with previously unrealized (and untaxed) gains. What does the IRS consider to be the taxable event? And when you consider the anonymity of crypto, how is the transaction reported?

Forgive me if these are dumb questions with obvious answers.

 

[GrayHare]

The taxable event is the exchange of the crypto for something else. I think the reporting would go on Schedule D.

 

[SecondCor521]

Try reading:

https://www.irs.gov/pub/irs-utl/201...ency-an-introduction-and-tax-consequences.pdf

(Found by googling "cryptocurrency site:irs.gov")

 

[Bluegrass]

Thanks for that link. The last bullet point on the “Tax Basics” page is what I’m talking about. I understand what the code intends. What I don’t understand is how that transaction (using crypto to pay) would be reported/accounted for as a taxable event.

 

[Teacher Terry]

Yes both my son and I had to report to the IRS and pay taxes on bitcoin.