Tax Which Bitcoin

[awday]

If you buy Bitcoin on two different dates, and one of the dates you have held for more than a year, for USA tax purposes you can spend the bitcoin you have held for over a year at the long term capital gains tax rate, is that right? Because it seems like it would matter which exact bitcoin you spent, but if it is all in the same wallet I am not sure how this works.

Thanks.

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[Bttzed03]

Hey, you can read @Ratimov's tutorial - [Tutorial] Crypto taxes for beginners

To answer your question, yes you can spend your crypto you've held for over a year and be subjected to long term capital gains tax.

If I am not mistaken, what you sell/move is what's subjected to tax. The balance you held isn't. The problem here is when your BTC will be sent to the recipient's address and to a change address which you also own. 

To make things simple for you, it would be wise to have a separate wallet for BTC you plan to hold for long term and those you plan on spending short term.

[awday]

So if I have a wallet full of bitcoin, and only 0.5 of the bitcoin has been in the wallet over a year, I can spend up to 0.5 bitcoin at the long term capital gain level (in other words, you can apply the best case scenario for yourself)?

It just seems to me it would matter which exact bitcoin you are spending, but that is impossible to know.

[Bttzed03]

So if I have a wallet full of bitcoin, and only 0.5 of the bitcoin has been in the wallet over a year, I can spend up to 0.5 bitcoin at the long term capital gain level (in other words, you can apply the best case scenario for yourself)?

Yes.

It just seems to me it would matter which exact bitcoin you are spending, but that is impossible to know.

I understand what you mean. It's up to you to declare what amount you spent/sold and what amount you are still holding. It's the IRS job to determine whether your tax declaration is proper or not. My suggestion is not to underestimate their ability to track your transactions. When caught for evasion/under declaration, penalties are a pain in the a$$.

[awday]

Thanks. I am not trying to get out of anything, just want to understand it.

So, one last example, let's say I have two wallets, one with 0.5 bitcoin that has been in there a year, and the other with 0.5 bitcoin that has been in there less than a year.

If I spend 0.5 bitcoin from the wallet that has the bitcoin in there less than a year, can I then legally claim come tax time that I spent the other 0.5 bitcoin from the other wallet for tax purposes?

[Bttzed03]

So, one last example, let's say I have two wallets, one with 0.5 bitcoin that has been in there a year, and the other with 0.5 bitcoin that has been in there less than a year.

If I spend 0.5 bitcoin from the wallet that has the bitcoin in there less than a year, can I then legally claim come tax time that I spent the other 0.5 bitcoin from the other wallet for tax purposes?

I'm not exactly sure what you mean but let's clarify this.

• BTC spent/sold after being held for more than year are subject to long term capital gains tax (lower rates).
• BTC spent/sold instantly (less than a year) are subject to short term capital gains tax (higher rates).

Again, your BTCs might be taxed (CG) whenever you move them.

Since you used two wallets in your example (wallet A as >1year, wallet B as <1year), you can report wallet B transactions for CG tax purposes.

[theskillzdatklls]

Typically the FIFO method is used, first in, first out. Wouldn't matter which Bitcoin you used from which wallet. Therefore all spending would come from your long term capital gains first.

[davis196]

If you buy Bitcoin on two different dates, and one of the dates you have held for more than a year, for USA tax purposes you can spend the bitcoin you have held for over a year at the long term capital gains tax rate, is that right? Because it seems like it would matter which exact bitcoin you spent, but if it is all in the same wallet I am not sure how this works.

Thanks.

The US tax system is so confusing.I'm glad that I'm not a US citizen.
I think that you will need a good accountant.This costs money,but there's no other way to deal with tax issues in the USA,I guess.
It seems to me that Bitcoin is being treated by the IRS as the same type of financial asset like stocks or government bonds(which is totally wrong).People should spend their bitcoins anytime time they want,without paying ridiculous capital gains taxes.
What if the Bitcoin price went down for 1 year and you didn't gain any capital or profits by HODLing BTC?
I guess that you don't have to pay capital gains tax in that case.

[okala]

Hey, you can read @Ratimov's tutorial - [Tutorial] Crypto taxes for beginners

To answer your question, yes you can spend your crypto you've held for over a year and be subjected to long term capital gains tax.

If I am not mistaken, what you sell/move is what's subjected to tax. The balance you held isn't. The problem here is when your BTC will be sent to the recipient's address and to a change address which you also own. 

To make things simple for you, it would be wise to have a separate wallet for BTC you plan to hold for long term and those you plan on spending short term.

Tax matters are in different form and varies from one country to the other, in my country all deposits into banks account are subject to tax of the federal government through the central bank.

[slaman29]

The US tax system is so confusing.I'm glad that I'm not a US citizen.
I think that you will need a good accountant.This costs money,but there's no other way to deal with tax issues in the USA,I guess.
It seems to me that Bitcoin is being treated by the IRS as the same type of financial asset like stocks or government bonds(which is totally wrong).People should spend their bitcoins anytime time they want,without paying ridiculous capital gains taxes.
What if the Bitcoin price went down for 1 year and you didn't gain any capital or profits by HODLing BTC?
I guess that you don't have to pay capital gains tax in that case.

That is why they have tax lawyers and advisors over there, all themselves earning a nice big cut from everyone else. Tax actually is confusing but only if you do not start doing it. I bet you every country has free resources at the government to help you fill out your tax returns. Every country wants revenue year after year:) And for me taxing Bitcoin is smart. Legalize something and make it normal money. Great for adoption.

[Xinarae*]

Bank accounts are controlled by the government and are managed by the government but there is no tax on Bitcoin. Bitcoin is not controlled by the government of any country. Prices increase based on market demand and the amount of fees for transactions and exchanges varies in the case of long-term planning it is better to use reliable wallets. Transactions from here will be much easier there will be no tax.

[DoublerHunter]

^ As far as I know bitcoins are subjected to capital gain tax and each transaction is also being charged for fees, in that case, I can say that bitcoin is not exempted from tax. And with regards to OPs concern if tax will be based on how long you held the bitcoin I agree that it will be difficult for the government to identify which of the bitcoins you are about to spend if it is going to be taxed as a short term or a long term asset and that gave me the idea where FIFO is being applied for bitcoins doesn't have serial number unlike with fiat money that is circulating in the market government can easily track how long it is being used since it was first released. However, that still remains the government couldn't know how long this particular fiat is being held by an individual compare to other assets like our properties (e.g cars, land etc.) they can easily trace how long you've been owning the property and get taxed for it if such.

[awday]

I also wonder how on earth a govt tax authority could respond if it was proven you bought $xyz amount of bitcoin, and you stated to them that you had lost the key. How can you prove or document that you lost something? You can't, so I suppose in the irs case they would just assume you spent it and tax you on it.