Tax Question: Sell BTC on Jan 1, 2013. Spend $ to buy BTC Dec 31, 2013

[virtualfaqs]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that? 

[1713557541]

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[1713557541]

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[1713557541]

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[virtualfaqs]

I dunno. Unrealized losses of $1000+ per coin? I should not have to pay taxes again. But anyone who has a clue about taxes chime in?  

[hanwong]

If what you are describing is shorting BTC on Jan 1 and then buying back on Dec 31, then you will report capital losses ($3000 max per year with future year carryovers). Go to form 8949, input basis price as the Dec 31 price, sales price as Jan 1 price, and indicate short sale. Let me know if you understand how to do this or require further help.

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf
page D-5

[virtualfaqs]

If what you are describing is shorting BTC on Jan 1 and then buying back on Dec 31, then you will report capital losses ($3000 max per year with future year carryovers). Go to form 8949, input basis price as the Dec 31 price, sales price as Jan 1 price, and indicate short sale. Let me know if you understand how to do this or require further help.

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf
page D-5

Nope. Sorry. Just buying and selling no shorts. But since there's no more $$$ on Dec 31, do I still have to pay capital gains?

[Philj]

If the amount of your $USD didn't change then there is no capital gain. If you sold $10,000 of BTC on Jan1, then only bought $1000 on Dec 31, then you would have a gain for the year of $9000.

IANAL 

[mgio]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that? 

That's not how it work. You buying bitcoin on Dec 31st is not a loss.

It's only a loss when you sell bitcoin for less than you bought it with.

I'm not sure I understand what you are proposing. Give me a specific example.

[virtualfaqs]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that? 

That's not how it work. You buying bitcoin on Dec 31st is not a loss.

It's only a loss when you sell bitcoin for less than you bought it with.

I'm not sure I understand what you are proposing. Give me a specific example.

You got the BTC for free for example. Sell 10 BTC for $100 USD/BTC and get $1,000. USD/BTC rises to $1000. You buy back 1 BTC for $1000. You'd still have to pay 15% on $1000. Now if BTC drops to $1. Your capital gain tax is the same?

[mgio]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that? 

That's not how it work. You buying bitcoin on Dec 31st is not a loss.

It's only a loss when you sell bitcoin for less than you bought it with.

I'm not sure I understand what you are proposing. Give me a specific example.

You got the BTC for free for example. Sell 10 BTC for $100 USD/BTC and get $1,000. USD/BTC rises to $1000. You buy back 1 BTC for $1000. You'd still have to pay 15% on $1000. Now if BTC drops to $1. Your capital gain tax is the same?

Yes, but only if you sell that btc for a dollar.

So, you could do this
1) sell 10 BTC for $100, and have a capital gain of $1,000
2) buy 1 BTC for $1,000
3) sell 1 BTC for $1, and have a capital loss of $999

You would only owe taxes on a $1 gain if you did that all within a calendar year.

Of course you'd only end up with $1 too so I don't see how this is helpful to you.

[virtualfaqs]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that?  

That's not how it work. You buying bitcoin on Dec 31st is not a loss.

It's only a loss when you sell bitcoin for less than you bought it with.

I'm not sure I understand what you are proposing. Give me a specific example.

You got the BTC for free for example. Sell 10 BTC for $100 USD/BTC and get $1,000. USD/BTC rises to $1000. You buy back 1 BTC for $1000. You'd still have to pay 15% on $1000. Now if BTC drops to $1. Your capital gain tax is the same?

Yes, but only if you sell that btc for a dollar.

So, you could do this
1) sell 10 BTC for $100, and have a capital gain of $1,000
2) buy 1 BTC for $1,000
3) sell 1 BTC for $1, and have a capital loss of $999

You would only owe taxes on a $1 gain if you did that all within a calendar year.

Of course you'd only end up with $1 too so I don't see how this is helpful to you.

I think this is starting to make sense now. I have to pay capital gains on Dec 31. Next year if BTC drops to $1 and I sell, then I can declare a capital loss and get it all back. And there's no limit right?

Basically if you sell 367-day-old BTC and rebuy new BTC repeatedly at the same price a few times a year, you have to pay taxes right away on gains. If you buy and hold, then sell all at once, you can pay capital gains later. But the capital gains tax remains more or less the same with some extra transaction fees.

[mgio]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that?  

That's not how it work. You buying bitcoin on Dec 31st is not a loss.

It's only a loss when you sell bitcoin for less than you bought it with.

I'm not sure I understand what you are proposing. Give me a specific example.

You got the BTC for free for example. Sell 10 BTC for $100 USD/BTC and get $1,000. USD/BTC rises to $1000. You buy back 1 BTC for $1000. You'd still have to pay 15% on $1000. Now if BTC drops to $1. Your capital gain tax is the same?

Yes, but only if you sell that btc for a dollar.

So, you could do this
1) sell 10 BTC for $100, and have a capital gain of $1,000
2) buy 1 BTC for $1,000
3) sell 1 BTC for $1, and have a capital loss of $999

You would only owe taxes on a $1 gain if you did that all within a calendar year.

Of course you'd only end up with $1 too so I don't see how this is helpful to you.

I think this is starting to make sense now. I have to pay capital gains on Dec 31. Next year if BTC drops to $1 and I sell, then I can declare a capital loss and get it all back. And there's no limit right?

Basically if you sell 367-day-old BTC and rebuy new BTC repeatedly at the same price a few times a year, you have to pay taxes right away on gains. If you buy and hold, then sell all at once, you can pay capital gains later. But the capital gains tax remains more or less the same with some extra transaction fees.

You only get to declare a loss or gain when you sell. The price you buy at is used to determine the basis from which you calculate your loss or gain when you sell. The time you buy and sell is important as if you hold your coins for at least a year and a day you may be eligible to pay long term capital gains instead of short term capital gains tax on them. Also note that you can't pick and chose which coins you are selling. You have to pick either a FIFO (first in, first out) or LIFO (last in, first out) plan and stick with it. Most people will pick FIFO except in some unusual situations.

To answer your question, if you sell on Dec 31, yes, you have to pay capital gains for 2013. If you have a loss next year, it will appear on your 2014 tax return and can be used to offset gains in 2014 and future years. You can not use it to retroactively get your capitals gains tax from previous years back. It's important to realize that only up to $3500 of capital loss can be deducted off your income. The rest must be deducted off of other capital gains. Fortunately, you can carry it forward to future years. So if you sell in 2014 and declare a loss but don't have any capital gains of that year, you can put it on your 2015 or future tax returns if you have a capital gain that year. Or you can deduct $3500 a year off your income.

[Nebulous]

Umm, the answer to your question may depend on your jurisdiction, in any case:

Sold 10 BTC on Jan 1, 2013 at $100/BTC, you realized a capital gain of 10 x $100 = $1,000.

This capital gain needs to be declared in your income for the taxation year 2013.

However, Dec 31, 2013 you buy 100 BTC at $10/BTC = $1,000, so you lost $1,000. Depending on your jurisdiction you may deduct this against your capital gains for the year.

Therefore for the taxation year 2013 you made $1,000 by selling 10 BTC, and then lost $1,000 by buying 10 BTC.


If there was a positive spread (say you made money), you would need to declare that income as a capital gain, if there was a negative spread (you lost money), you SHOULD declare it as a capital loss even if you have nothing to set it against as capital losses (atleast in canada) can be carried back three years (not sure of the number, this is off the top of my head) and carried forward either 10/20 years or indefinitely (this is again off the top of my head) and so can be used to offset gains in consequent years.

It is actually quite complicated stuff in practice, I would advise you to get the help of a lawyer / accountant with knowledge of cryptos, if you are Canadian you can ask me and I will tell you when I have time.

[mgio]

Umm, the answer to your question may depend on your jurisdiction, in any case:

Sold 10 BTC on Jan 1, 2013 at $100/BTC, you realized a capital gain of 10 x $100 = $1,000.

This capital gain needs to be declared in your income for the taxation year 2013.

However, Dec 31, 2013 you buy 100 BTC at $10/BTC = $1,000, so you lost $1,000. Depending on your jurisdiction you may deduct this against your capital gains for the year.

Therefore for the taxation year 2013 you made $1,000 by selling 10 BTC, and then lost $1,000 by buying 10 BTC.

This is definitely NOT true in the US. I can't speak for other countries.

Buying an commodity like bitcoin is NOT a loss as the bitcoin has value. Namely the value is what you bought it at! You can only realize a loss when you sell it for an amount less than what you paid. Or you realize a gain when you sell it for more you paid for it. The price you buy the bitcoin at is used as the basis for calculating your future gains (or losses).

[Nebulous]

Umm, the answer to your question may depend on your jurisdiction, in any case:

Sold 10 BTC on Jan 1, 2013 at $100/BTC, you realized a capital gain of 10 x $100 = $1,000.

This capital gain needs to be declared in your income for the taxation year 2013.

However, Dec 31, 2013 you buy 100 BTC at $10/BTC = $1,000, so you lost $1,000. Depending on your jurisdiction you may deduct this against your capital gains for the year.

Therefore for the taxation year 2013 you made $1,000 by selling 10 BTC, and then lost $1,000 by buying 10 BTC.

This is definitely NOT true in the US. I can't speak for other countries.

Buying an commodity like bitcoin is NOT a loss as the bitcoin has value. Namely the value is what you bought it at! You can only realize a loss when you sell it for an amount less than what you paid. Or you realize a gain when you sell it for more you paid for it. The price you buy the bitcoin at is used as the basis for calculating your future gains (or losses).

You're right, I'm wrong, I think I need to brush up my tax law

[NewLiberty]

Do I have to pay taxes? There's no realized gains.

Therefore no capital gains. Or am I wrong about that?  

You are wrong about it.
It is called a WASH SALE and doesn't avoid the tax liability in most jurisdictions.
en.wikipedia.org/wiki/Wash_sale

So.... Intentionally doing this and claiming it does avoid the tax is tax evasion and criminal.