Tax Treatment of Cryptocurrency Clarified in New Tax Bill
Starting January 1, 2018, exchanges of cryptocurrency for other cryptocurrency have been explicitly identified as taxable events under the lastest tax bill. Since March 2014 when the IRS issued a notice treating cryptocurrency as property subject to capital gains tax, there has been speculation as to whether exchanges of cryptocurrency for other cryptocurrency qualifies for like kind exchange treatment (nontaxable). This new law clears up that ambiguity.
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How are folks here planning to handle this in 2018?
Ideally, everyone has tracked their basis (the amount they originally paid for the cryptos) and it's just a matter of recognizing any gain on a FIFO (first in first out) methodology. So if I paid $100 for 1 Bitcoin in January and another $200 for 1 Bitcoin in February and I trade 1 Bitcoin for 5 XRP in March when XRP is worth $100 a pop, my gain would be as follows: $500 XRP - $100 Bitcoin = $400 short term capital gain.
FIFO is the more commonly used method because of it's simplicity. But this would only hold true if one uses but one exchange. If the two Bitcoin were purchased at different exchanges and one used the February BTC to trade for the XRP it would be a different story.
This is a great point. Each population of cryptocurrency (different wallets, exchanges) will be accounted for separately.
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