What exactly is the taxable event? When the source code for the fork is first published? When the first block is mined on the new chain?
If so, then there's probably no market for the asset at that instant, so the fair market value is zero?
When Ethereum hard-forked, some miners kept mining the old chain, now affectionately known as Ethereum Classic. Seems like Classic is the original asset and what we now call Ethereum is the new asset.
Let's say I paid $200 for 1 ETH before the fork, and after the fork I own 1 New ETH worth $195 and one 1 Classic ETH worth $5.
Do I now owe tax on $195 even though the total value of New ETH + Classic ETH equals my acquisition cost?
> Let's say I paid $200 for 1 ETH before the fork, and after the fork I own 1 New ETH worth $195 and one 1 Classic ETH worth $5.
> Do I now owe tax on $195 even though the total value of New ETH + Classic ETH equals my acquisition cost?
Let's say for simplicity sake that all this happened within the same calendar year. Here's where you're at.
You bought 1 ETC for $200 and now it's worth $5. That's a $195 unrealized capital loss.
Let's say you acquired your ETH from the fork and it was trading at $5 when you got it. You now have 1 ETH that has a cost basis of $5. This represents a $5 realized capital gain, and a $190 unrealized capital gain.
If you disposed of everything within the same year, it would be a complete wash, as your $195 capital loss would offset your $(190 + 5) capital gain.
If you carried your positions into the next tax year, you'd have to pay taxes on the $5 your ETH was worth when the fork happened at the end of year 1. Then in year 2, you have a $195 unrealized capital loss and a $190 unrealized capital gain. This would yield a $5 net capital loss, which you could use to offset other capital gains or carry forward into future years, deductible $3000 per year for the rest of your life.
In reality what happened though is that both ETH went up and ETC went up because a fork of a currency is just a copy-paste, as they have no intrinsic value and their performance afterwards is frequently totally uncorrelated other than in the way the whole crypto "market" is correlated to BTC.
If so, then there's probably no market for the asset at that instant, so the fair market value is zero?
When Ethereum hard-forked, some miners kept mining the old chain, now affectionately known as Ethereum Classic. Seems like Classic is the original asset and what we now call Ethereum is the new asset.
Let's say I paid $200 for 1 ETH before the fork, and after the fork I own 1 New ETH worth $195 and one 1 Classic ETH worth $5.
Do I now owe tax on $195 even though the total value of New ETH + Classic ETH equals my acquisition cost?