For Federal income tax purposes, virtual currency is treated as “property,” not currency. This means that a transaction involving virtual currency, such as a sale or exchange, results in capital gain or loss. Thus, IRS guidance explains, “If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain.”
For each transaction, taxpayers will need to compare the cost basis of the virtual currency they are using (generally the amount paid for the virtual currency) against the fair market value (FMV) of the goods or services they are receiving in exchange. If the FMV they receive exceeds their basis in the virtual currency, they will recognize income. On the other hand, if the basis in the virtual currency exceeds the FMV of the property or services received, taxpayers can claim a loss.
Bitcoin, Cryptocurrency, Blockchain
