The most basic thing to know about taxes on bitcoin and other cryptocurrencies in the United States is that they can be very simple or completely counterintuitive.
This week on Reddit, a user shared a tax horror story. At the beginning of 2017, he bought 8 bitcoins for $7,200, during the year the price increased significantly and at the end of the year he exchanged all his bitcoins, which by that time were worth $120 thousand, for other altcoins. Then the price of cryptocurrency fell and now his investment is worth about 30 thousand dollars.
Turning 120 thousand into 30 thousand is in itself disappointing, but being able to pay taxes on 120 thousand and have 30 is even worse. When the aforementioned user made a transaction to exchange bitcoin for altcoins, he did not know that this transaction would be subject to tax. Now, he owes the state about $50,000.
Prior to December 31, 2017, transactions for the exchange of certain types of cryptocurrencies could be regulated by Section 1031 of the tax code, according to which such exchanges were considered “like-kind” and such transactions were not subject to tax. But you needed to find a tax professional to sign your tax forms and confirm the deal. After December 31, changes were made to the code and Rule 1031 began to apply only to real estate transactions. And cryptocurrency exchanges are now subject to taxation as sales transactions.
If you are a law-abiding citizen and you report all your cryptocurrency sales and purchases in the last year, then you may have to pay taxes on cryptocurrency that has fallen in price, and you will owe the government a fortune that you don't have.
The Internal Revenue Service will verify that you have reported all of your transactions.
According to https://www.slashgear.com
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