
Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan - jeffwass
https://www.bloomberg.com/news/articles/2017-12-21/tax-free-bitcoin-to-ether-trading-in-u-s-to-end-under-gop-plan
======
jschmitz28
Is the cost basis calculated by the US dollar value of each at the time of the
exchange? Or based on the exchange rate of the two currencies?

Scenario:

1\. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC.

2\. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC.

Option 1: I’ve incurred a loss, because the sale is reported as first a sale
of ETH for USD, then a purchase of BTC at whatever the cost basis between
BTC/USD.

Option 2: I’ve incurred a gain, because I traded directly from ETH to BTC, and
the relative value between ETH and BTC has gone up.

~~~
chollida1
It's driven off whats called your dollar cost average.

So in your scenario

Buy 1 ETH for say $500, your cost base is $500.

If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at
that moment.

If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500
then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100
of capital gains.

What bitcoin is worth is irrelevant until you sell the bitcoin.

 __EDIT __Just assume that every transaction between crypto currencies has an
implicit, convert to USD first and then buy the other Crypto with USD.

Also, There is always a USD price, what the price is, is a bit of an art, but
its what ever price you can convince the IRS of.

~~~
jschmitz28
Thanks - given your comment it sounds like option 1 mentioned above where
gains are calculated based off of USD value even if the currencies are traded
directly. But as another commenter mentioned, I don’t see how this can work
because the trade doesn’t involve USD at all, and the exchange rate for
USD/ETH may vary widely between exchanges. And for more niche
cryptocurrencies, a USD value may not even exist because there are no trades
between USD and that currency.

~~~
newfoundglory
> the trade doesn’t involve USD at all

Neither does buying pounds in euros, but you'll still calculate your taxes in
USD.

------
chollida1
Probably good news for investors long term. Bitcoin again continues to grow up
and be treated as an equal to bonds, stocks, etc.

If you are a holder, or HODL as the kids say, then you get the benefit of long
term rates, if you are a short term trader then you pay the short term capital
gains rates, just like any other currency/commodity. trade.

Concrete rules will bring in more conservative money.

This was the last loop hole that some people were concerned about wrt to taxes
and virtual currency trading.

~~~
matchcohnn
without wash trades to pump up its value, what good is bitcoin for??

\- bitcoin isn't usable as a transactional currency. it costs $30-40 per
transaction. Plus other currencies are gaining steam, and offering other
choices for people to transact

\- bitcoin isn't rare to be a store of value.....everyday there's a new viable
cryptocurrency springing up

\- bitcoin isn't safer than dollar.....it can drop 90% in any day; no official
entity is going to prop it up and make sure it doesn't crash. it can be banned
by countries (and has been by a few)

\- bitcoin isn't easy than square cash or visa or wires.....it can take
several weeks to send money. plus the transaction fees are high

~~~
chollida1
> without wash trades to pump up its value, what good is bitcoin for??

Can you please explain in clear terms how a wash trade pushes up the value of
bitcoin?

I can see it increasing the volume but not the value.

~~~
sremani
I do not think bitcoin has this problem because of the volume, but "painting
the tape" is done to a lot of alt-coins by shark-pools.

------
xur17
Most tax advisers I spoke with recommended against treating this as an in-kind
exchange anyways.

~~~
gojomo
But if this bill means that the IRS will only reject like-kind starting
January 1, 2018, then those advisors (and their clients) made an expensive
error-on-the-side-of-caution, didn't they? Perhaps even to the extent that
people who followed that advice might dare to amend their 2016-and-earlier
returns?

This year, the case for 'in-kind' exchange might be best for Bitcoin and its
baby Bitcoins (Bitcoin Cash and Bitcoin Gold) – the functional differences are
initially miniscule, though likely to grow in time.

~~~
ultraluminous
The in-kind rule is not going to apply to any kind of crypto. TFA states it's
now formally restricted to domestic real-estate.

~~~
gojomo
TFA is explicit that it is reporting on a legislative change (expected but not
yet signed into law) that'd be effective January 1, 2018. It strongly implies
a more-favorable treatment is being lost, and that more-favorable treatment
was still available for ty2016, and is still available 'now', and through
December 31, 2017.

~~~
gamblor956
No, TFA is saying that a potential method of characterizing bitcoin exchanges
is being explicitly eliminated. It never says that this method was acceptable.
Unlike other forms of law, tax law can be retroactive (see, e.g., the loss-
harboring tax shelter scandal).

You could always play with fire and try this for your 2016 and 2017
transactions, but if you get audited, expect penalties.

~~~
gojomo
The article lede strongly implies that method is a currently operative tax
advantage:

> _Investors in bitcoin and other virtual currencies would lose a lucrative
> tax break… "_

It also reports, without caveats (or attribution to "some say") that the
characterization has been used successfully, so far, in the absence of an
explicit prohibition:

> _Under current law, such trades have been protected under a provision that
> allows investors to defer capital gains taxes on so-called “like-kind
> exchanges”_

Several of the tax attorneys quoted advance the interpretation that this
treatment will only stop on January 1, 2018 under the new bill.

Of course, there's a risk given the ambiguities also mentioned in the article.
But the fact that it required legislation, with a future-effective-date, to
clarify may give more cover to those using the treatment before that date –
and focus discretionary enforcement on clearer cases in 2018.

~~~
zwily
I've spoken to several tax attorneys about this over the past couple years as
well, and not one has said they'd be comfortable treating these as in-kind
transactions. It was therefore surprising to me to read this article today.

------
thefreeman
Are exchanges going to provide us with necessary tax documents in order to pay
these taxes? So far all I've found is a terrible csv export that shows the
date and amount of purchases of various crypto currencies, but no information
at all on the current price at the time of purchase or the amount sold for
(this is on Coinbase). I'm starting to get a bit concerned.

~~~
nawtacawp
I purchased $300 BTC the other day on CB and they wanted a $30 transaction fee
to withdraw the BTC off their site. I wonder if this fee can also be
considered part of the purchase?

~~~
shawabawa3
Just FYI, coinbase is paired with GDAX, their exchange.

You can transfer your bitcoin to GDAX and withdraw it from there for free
(they will eat the bitcoin fees)

------
mancerayder
I don't mind being taxed at all.

What I find stressful is calculating - not just the 'what was the USD price at
the time of the exchange' that has to be manually entered and looked up into
the exported CSV spreadsheet... BUT tying that to the movement of coin from
Coinbase to the exchange. It's a pain.

I regret using Bittrex, as there's almost no tooling for this available.

~~~
throwaway30yo
I on the other hand, mind being taxed.

~~~
simonswords82
Not saying I disagree with you, but I'd like to understand your reasoning...

~~~
throwaway30yo
I disagree with a solid 80% of government spending. Lots go against my core
values and morals. Currently right now as a Canadian I even have to pay taxes
for religious schools, a religion which was responsible for molesting my
father as a child.

I pay against my will because the government holds a monopoly on violence.
They will lock me up for not paying.

A society built on top of the threat of violence is not one I endorse.

~~~
mancerayder
All valid points - and the U.S. government is even worse, considering the
defense budget.

But while naughty, the alternatives to these governments are private
individuals / militias / warlords doing far worse against your values and
morals.

------
withdavidli
While it was deemed to be treated as property, IRS never gave guidance on
ability to treat it as like kind transaction. Accountants have been asking for
this clarification for years.

SEC treating ICO as a security. IRS needs to come out with more guidance, but
doing taxes is going to be a pain with crypto to crypto. Not looking for
trouble with IRS, especially when gains were plentiful for so many this year.

Pay your taxes, you don’t want to be the example the IRS makes. PR not going
to look good for people in crypto, “majority of crypto owners refusing to pay
taxes”.

~~~
1053r
What? The IRS gave guidance for this in 2014! It's right there under item Q-6
in Notice 2014-21. [https://www.irs.gov/pub/irs-
drop/n-14-21.pdf](https://www.irs.gov/pub/irs-drop/n-14-21.pdf)

"Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency
for other property?"

"A-6: Yes." (quote continues, but there you go).

I have no idea how folks came to the conclusion that 1031 swaps were ever
acceptable, but it's always been clear that the IRS did not think they were.

TL;DR Don't get your tax advice from Reddit. (Or random commenters on hacker
news, for that matter.)

~~~
gojomo
That would have been so much clearer if they'd just written "…upon an exchange
of virtual currency for other property, including other virtual currency."

But they didn't, and thus the 'other' can easily be read as "other kind of
property" – leaving 'virtual currency' to 'virtual currency' unaddressed.

------
Gargoyle
HN has spent the better part of a decade repeatedly telling me these things
are both worthless, so I'm sure this is fine.

------
g09980
IIRC like-kind treatment was never made available, with the new tax plan or
without.

~~~
ringaroundthetx
> IIRC like-kind treatment was never made available, with the new tax plan or
> without.

They never clarified and now they'll never have to.

Like-kind treatment is given to property, with specific exemptions made by the
IRS. If the IRS never made an exemption, but it did designate cryptocurrencies
as property, then like-kind treatment applies.

Given that cryptographic hashes are the only thing trading in any distributed
ledger technology, it doesn't matter what the name plastered on the network
is, it would fit existing regulations and case law around like-kind exchange.

Now with the new law change from Congress, the agency or the courts will never
have to deal with it if they don't challenge 2017 tax filings.

------
sixdimensional
Can somebody explain something to me... I haven't been participating in the
Bitcoin/cryptocurrency movement for better or worse, just following it from
afar:

I thought the premise of these currencies was to avoid government and banking
oversight/control... but with both the SEC and IRS putting controls around
virtual currency (which I think we all expected to happen), how does that
change the original inspiration? Do these virtual currencies become relegated
to the same fate as all other currencies?

Was seeing this happen part of the experiment of crypto-currency as well? I
keep trying to figure out the real motivation behind the basically unknown
origins of the inventors (e.g. Satoshi Nakamoto).

~~~
CoryG89
I don't think it was this change that put that to rest. I doubt Satoshi ever
foresaw that BTC transaction times and fees would grow so large that you
essentially cannot use it for everyday purchases. It is still not feasible to
regulate BTC itself. They only really only regulating the exchanges.

~~~
sixdimensional
I also have been a bit confused by the usability of BTC for ordinary people,
due to the units of measurement. The fractional nature of BTC and
cryptocurrency seems like it would not fit the necessary ease of use for most
non-digital, day-to-day transactions. I think ordinary people would find it
hard to buy bread if it cost 0.000127 BTC ($1.99 USD), for example.

~~~
pgm8705
I think things would start being priced using different units. With your
example of bread costing 0.000127 BTC, that could also be written as 127
"bits" or μBTC. It would take a lot of getting used to, but it really isn't
any more complicated than $1.99.

------
KirinDave
Wash sale rules still apply (as has been noted elsewhere). But it's pretty
likely this government will start to aim for that as well.

The only policy lens by which this current congress's bill makes sense is on
that "rewards existing businesses moving into new markets" as opposed to "new
businesses competing with existing via new markets." And while I'm not a fan
of the bill or its primary authors, I'm simply not able to accept the idea
that they don't have a policy direction.

~~~
drvdevd
This fits quite nicely with having less “net neutrality” doesn’t it?

~~~
KirinDave
I believe so. The existing GOP agenda appears to be to reward large corporate
donors by systematically opposing competition. They're actually much less of a
capitalist party than the democrats.

This is why every libertarian should be doing everything they can do to piss
on this tax bill. It's MUCH worse than the status quo.

------
sneak
Man, like-kind doesn’t even allow silver to gold. I can’t imagine even the
most liberal interpretation would allow trading between different blockchains.

This article seems to have an agenda.

------
kindfellow92
This was already the case... FUD

[https://www.irs.gov/pub/irs-drop/n-14-21.pdf](https://www.irs.gov/pub/irs-
drop/n-14-21.pdf)

------
cik2e
There is another loophole that's just as good. Wash sale rules don't apply to
crypto, yet.

~~~
fpisfun
I don't see how it's just as good, it's good but not nearly the same

------
IIAOPSW
I have a spanner to throw at this.

I'm American. I used to live in China. I bought some bitcoin in China. Later I
changed some of that bitcoin for an altcoin. I now live in Japan and sometimes
do more alt coin exchanges. How if at all am I taxed?

~~~
notjesse
You should honestly consult a tax professional about this, as it's not a good
idea to get tax advice from strangers on the internet.

But according to the IRS, you are only taxed at time of disposal when capital
gains were realized. I am not at all familiar with Chinese or Japanese tax
law, so I couldn't tell you what your liabilities might be there.

------
yks
If I buy N btc every month for different price and then sell some fractional
amount, what would be the cost base? It appears to be possible to name the lot
being sold but I can't find the consensus, internet in general advises FIFO.

~~~
froindt
If it's like stocks, I reckon you can specify which lot is getting sold. That
was one of the things up for debate under the GOP proposed tax reforms. FIFO
requirement for sales didn't make it into the final bill.

This is the best resource I have found at a quick search. The answer is simply
it depends on how you setup your cost basis.

[https://www.investopedia.com/terms/a/averagecostbasismethod....](https://www.investopedia.com/terms/a/averagecostbasismethod.asp)

~~~
yks
but can I switch between different cost basis methods per transaction
basically? exchanges don't provide any tax info anyway.

------
antihero
How would they enforce this in any way at all?

~~~
toomuchtodo
Know Your Customer, requiring exchanges to provide the necessary data, etc.

~~~
squaredpants
What about decentralised exchanges?

~~~
toomuchtodo
Tax evasion rarely works out long term.

~~~
tomschlick
Yup. Remember, it wasn't the police who got Capone, it was the IRS.

~~~
cinquemb
So the IRS is going to put the same amount of resources into each of the new
mini - Capones as they did Capone?

~~~
saalweachter
That is literally the IRS's job. IRS funding at the margin directly increases
or decreases tax revenues, because they have more or less resources to spend
pursuing tax evasion.

~~~
jandrese
Luckily the IRS has been kneecapped by Congress because they started looking
into the finances of some sketchy looking conservative nonprofits.

[http://www.cnn.com/2014/07/18/politics/irs-scandal-fast-
fact...](http://www.cnn.com/2014/07/18/politics/irs-scandal-fast-
facts/index.html)

------
throwaway312367
The funny thing is all this regulation will probably serve to make cryptos
more legitimate.

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unpwn
does this apply to all the alt coins or just eth-btc?

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Zentgraf
Can someone please explain to me huw the government wants to track trading in
Anonymous currencys? They don't know it's me whi traded btc for eth

~~~
vertex-four
The Government also "tracks" large amounts of cash, which are about as
anonymous, through audits - both random and based on red flags. Basically,
they send round someone with the ability to lock you up if they can prove
you've intentionally hidden assets from them, and they're very, very good at
seeking out inconsistencies in your books.

Taxes existed before credit cards, you know.

------
donjoy
Today Ripple (xrp) has passed 1$ price mark

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fpisfun
Already been thinking about moving abroad, this is a great reason to push me
further in that direction

------
tinus_hn
So you do the trading offshore? It's a virtual currency after all.

------
reaperducer
So... Bitcoin people complain that it's not taken seriously as a real
currency. Then when it is, with all the associated regulatory and tax
ramifications, they complain about that, too.

~~~
anonyx69
Still not being taken seriously as a "real currency" \- it is being taken
seriously as "real property" though.

------
sharemywin
So, this and the SECs recent decisions are the point when the US gets left
behind on the next major advancement of technology.

An almost fricitionless, ubiquitous, audit-able marketplace. well, except for
monero and zcash.

~~~
tyleraldrich
Did you really think you'd be able to trade around money without being taxed?

~~~
Rmilb
IRS considers it an asset not money.

------
KasianFranks
If you are a U.S. citizen or if you don't do the double Irish like Google and
Apple. Typical misplaced understanding of crypto.

