Diversify BTC holdings into real estate, income tax?

[Hyena]

To my understanding a conversion from one investment into another is not taxed. So for example if I exchange my bitcoins for gold I am not paying any income tax, am I right?

Same logic can be applied to real estate then. I obtain some real estate for the wealth I have acquired from holding bitcoins. The real estate is an investment similarly to bitcoins. Can I do it as an individual (not company) and not pay any income tax?

To further elaborate on this, can I rent that real estate out? Can I live in it?

I understand there are different laws in different countries but any specific information on the matter is still welcome.

[zorke]

This is incorrect. If you exchange one investment for another then this would be considered to be a barter transaction. To figure your tax you would take your cost basis and subtract the fair market value of the investment that you received in exchange for your original investment. The fair market value of your new investment would then be the cost basis of your new investment.

[Hyena]

This is incorrect. If you exchange one investment for another then this would be considered to be a barter transaction. To figure your tax you would take your cost basis and subtract the fair market value of the investment that you received in exchange for your original investment. The fair market value of your new investment would then be the cost basis of your new investment.

This cannot be the whole truth because my current bank offers an investor's account which has a different number. They explained such a separate account by the possibility to postpone income taxes. Think logically, it's outrageous if I had to pay taxes each time I swap one stock for another. An investment account is exactly for allowing me to buy and sell for the purpose of investment and all the money on the investment account is not actually mine yet. The money only becomes my income once I transfer it from the investment account to my personal account.

[djjacket]

Quote from: zorke on Today at 03:38:06 AM

This is incorrect. If you exchange one investment for another then this would be considered to be a barter transaction. To figure your tax you would take your cost basis and subtract the fair market value of the investment that you received in exchange for your original investment. The fair market value of your new investment would then be the cost basis of your new investment.


This cannot be the whole truth because my current bank offers an investor's account which has a different number. They explained such a separate account by the possibility to postpone income taxes. Think logically, it's outrageous if I had to pay taxes each time I swap one stock for another. An investment account is exactly for allowing me to buy and sell for the purpose of investment and all the money on the investment account is not actually mine yet. The money only becomes my income once I transfer it from the investment account to my personal account.

I think you are confusing a tax-deferred retirement account and an investment account.  For regular investment accounts, you absolutely must record gains and losses based on the cost basis and market value at the time of the transaction.  Tax deferred accounts are special investment vehicles with certain restrictions that allow the tax to be deferred until withdrawal and a specified retirement age.

[yatsey87]

Op, I'd get some proper legal advice before doing anything like this. Don't want to be hit with a hefty tax bill at some point. Also, people here may give different advice depending on what country they are in.

[Hyena]

I think you are confusing a tax-deferred retirement account and an investment account.  For regular investment accounts, you absolutely must record gains and losses based on the cost basis and market value at the time of the transaction.  Tax deferred accounts are special investment vehicles with certain restrictions that allow the tax to be deferred until withdrawal and a specified retirement age.

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no wonder people don't pay taxes if they make it so god damn complicated. According to what you just said I am expected to declare the swaps between altcoins too like for every single transaction. this is outrageous.

One could as well as start an empty company that pays no wages and has no employees. The owner's bitcoins would be the investment and the company buys real estate in turn. I don't think there is any income tax to be paid when a company swaps one type of property for another. There clearly are holes in the whole taxation system which makes the system unfair for an individual.

to yatsey87:
I would obviously ask for legal advice and what not but this topic is more like speculation around a potential problem that might arise in the future .

[jjacob]

Depends on jurisdiction as well.
Where I stay, converting one asset into another is equivalent to a sale, and attracts capital gains tax.

[DhaniBoy]

for the wealth that we have shaped bitcoin, then we will be free of income tax, on the contrary when bitcoin has transformed itself into a real estate, then of course the income tax will be applied, in accordance with the laws and regulations in a country. The current majority rules and laws regarding income tax is almost the same in all countries, it will be difficult to avoid income tax when bitcoin turned into real estate.
hopefully BTC diversification of ownership to the real estate will be implemented in all the rules and laws of all countries, so that the ownership of real estate ownership together with bitcoin, did not result in income tax ... 

[wasserman99]

I think you are confusing a tax-deferred retirement account and an investment account.  For regular investment accounts, you absolutely must record gains and losses based on the cost basis and market value at the time of the transaction.  Tax deferred accounts are special investment vehicles with certain restrictions that allow the tax to be deferred until withdrawal and a specified retirement age.

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no wonder people don't pay taxes if they make it so god damn complicated. According to what you just said I am expected to declare the swaps between altcoins too like for every single transaction. this is outrageous.

One could as well as start an empty company that pays no wages and has no employees. The owner's bitcoins would be the investment and the company buys real estate in turn. I don't think there is any income tax to be paid when a company swaps one type of property for another. There clearly are holes in the whole taxation system which makes the system unfair for an individual.

You think incorrectly. Whenever you trade one kind of property for another property this transaction is considered to be a barter transaction. The IRS has actually already rules on this matter as they have said that you must pay taxes on any gains  (or take deductions on any losses) of your bitcoin based on the fair market value of the goods/services/property that you trade your bitcoin for.

The tax code is very complicated, however this portion is not. If this is too complicated for you then I would suggest hiring a qualified tax professional to prepare your taxes for you next spring.

[Hyena]

You think incorrectly. Whenever you trade one kind of property for another property this transaction is considered to be a barter transaction. The IRS has actually already rules on this matter as they have said that you must pay taxes on any gains  (or take deductions on any losses) of your bitcoin based on the fair market value of the goods/services/property that you trade your bitcoin for.

The tax code is very complicated, however this portion is not. If this is too complicated for you then I would suggest hiring a qualified tax professional to prepare your taxes for you next spring.

According to your logic if anyone sells their bitcoins they are required to pay taxes. Now that person immediately buys as many bitcoins as possible for the remaining money after paying taxes. Bitcoin rises a bit and the selling/rebuying repeats. By doing this the person loses a lot more money than by simply waiting and holding.

This gives us a system that is retarded. It discourages an individual from diversifying their investments. However, was that individual a company, I am god damn sure no income tax is required for diversifying the original investment. Which brings me to the conclusion that one should create a dummy company and do all the diversifications under the name of that company. The income tax is only paid on the wealth you take out from that company and declare as profit.

Simple proof of that retarded income tax friction:
I have 1 bitcoin worth of 1$ that I got for free.
Bitcoin rises to 10$ -> I have 1 bitcoin worth of 10$.
I sell 1 bitcoin and get 10$. 2$ (20%) goes away as income tax. 8$ remains to me.
I buy bitcoins for all my money. I get 0.8 bitcoins for the 8$.
Bitcoin rises to 100$ -> I have 0.8 bitcoins worth of 80$.
I sell 0.8 bitcoins and get 80$. 80 - 8 = 72. 20% of 72 is 14.4$ which goes for taxes. 65.6$ remains to me.
I buy bitcoins for all my money. I get 0.656 bitcoins for the 65.6$.
Bitcoin rises to 1000$ -> I have 0.656 bitcoins worth of 656$.
I sell 0.656 bitcoins and get 656$. 656 - 65.6 = 590.4. 20% of 590.4 is 118.08$ which goes for taxes. 537.92$ remains.

However, if I just waited and held my 1 bitcoin until it was worth 1000$, then 20% income tax would be just 200$ and I would have 800$ remaining.
262.08$ were stolen by the taxman as a result of a moronic taxation system.

Any comments, anyone?

[IIOII]

You think incorrectly. Whenever you trade one kind of property for another property this transaction is considered to be a barter transaction. The IRS has actually already rules on this matter as they have said that you must pay taxes on any gains  (or take deductions on any losses) of your bitcoin based on the fair market value of the goods/services/property that you trade your bitcoin for.

The tax code is very complicated, however this portion is not. If this is too complicated for you then I would suggest hiring a qualified tax professional to prepare your taxes for you next spring.

According to your logic if anyone sells their bitcoins they are required to pay taxes. Now that person immediately buys as many bitcoins as possible for the remaining money after paying taxes. Bitcoin rises a bit and the selling/rebuying repeats. By doing this the person loses a lot more money than by simply waiting and holding.

This gives us a system that is retarded. It discourages an individual from diversifying their investments. However, was that individual a company, I am god damn sure no income tax is required for diversifying the original investment. Which brings me to the conclusion that one should create a dummy company and do all the diversifications under the name of that company. The income tax is only paid on the wealth you take out from that company and declare as profit.

Simple proof of that retarded income tax friction:
[...]
I sell 0.656 bitcoins and get 656$. 656 - 65.6 = 590.4. 20% of 590.4 is 118.08$ which goes for taxes. 537.92$ remains.

However, if I just waited and held my 1 bitcoin until it was worth 1000$, then 20% income tax would be just 200$ and I would have 800$ remaining.
262.08$ were stolen by the taxman as a result of a moronic taxation system.

Any comments, anyone?

I don't know what kind of comment you like to hear. But yes, taxation is theft...

As you've clearly shown for your jurisdiction repeated trading is expensive. So don't do it. If you choose to diversify once, you only pay your taxes for this one occasion.

I think it's ok that a longterm strategy is taxed favorably, because in general those assets that have a longer holding period tend to have lower average returns. If you choose to trade back and forth you are able to generate surplus returns which a simple holding strategy does not provide.

[Hyena]

I don't know what kind of comment you like to hear. But yes, taxation is theft...

I'm sure I'm not the only one facing these problems. I was hoping that someone who already sorted out these issues for themselves would comment.

[zorke]

You think incorrectly. Whenever you trade one kind of property for another property this transaction is considered to be a barter transaction. The IRS has actually already rules on this matter as they have said that you must pay taxes on any gains  (or take deductions on any losses) of your bitcoin based on the fair market value of the goods/services/property that you trade your bitcoin for.

The tax code is very complicated, however this portion is not. If this is too complicated for you then I would suggest hiring a qualified tax professional to prepare your taxes for you next spring.

According to your logic if anyone sells their bitcoins they are required to pay taxes. Now that person immediately buys as many bitcoins as possible for the remaining money after paying taxes. Bitcoin rises a bit and the selling/rebuying repeats. By doing this the person loses a lot more money than by simply waiting and holding.

This gives us a system that is retarded. It discourages an individual from diversifying their investments. However, was that individual a company, I am god damn sure no income tax is required for diversifying the original investment. Which brings me to the conclusion that one should create a dummy company and do all the diversifications under the name of that company. The income tax is only paid on the wealth you take out from that company and declare as profit.

Simple proof of that retarded income tax friction:
I have 1 bitcoin worth of 1$ that I got for free.
Bitcoin rises to 10$ -> I have 1 bitcoin worth of 10$.
I sell 1 bitcoin and get 10$. 2$ (20%) goes away as income tax. 8$ remains to me.
I buy bitcoins for all my money. I get 0.8 bitcoins for the 8$.
Bitcoin rises to 100$ -> I have 0.8 bitcoins worth of 80$.
I sell 0.8 bitcoins and get 80$. 80 - 8 = 72. 20% of 72 is 14.4$ which goes for taxes. 65.6$ remains to me.
I buy bitcoins for all my money. I get 0.656 bitcoins for the 65.6$.
Bitcoin rises to 1000$ -> I have 0.656 bitcoins worth of 656$.
I sell 0.656 bitcoins and get 656$. 656 - 65.6 = 590.4. 20% of 590.4 is 118.08$ which goes for taxes. 537.92$ remains.

However, if I just waited and held my 1 bitcoin until it was worth 1000$, then 20% income tax would be just 200$ and I would have 800$ remaining.
262.08$ were stolen by the taxman as a result of a moronic taxation system.

Any comments, anyone?

Why would you do such an exercise? If you were to disregard the tax aspect of this you would be risking that the price of bitcoin be rising while you own fiat.

Your example is an example as to how you could maximize your tax liability however people tend to do the opposite and try to make their tax liability as low as possible.

[Hyena]

Why would you do such an exercise? If you were to disregard the tax aspect of this you would be risking that the price of bitcoin be rising while you own fiat.

Your example is an example as to how you could maximize your tax liability however people tend to do the opposite and try to make their tax liability as low as possible.

Isn't minimizing your tax liabilities equivalent to avoiding taxes? so it's pretty much a criminal act...

I did not know that tax system is so ambiguous. It's clearly not created by mathematicians and programmers but by stupid politicians instead.

[TheButterZone]

Why would you do such an exercise? If you were to disregard the tax aspect of this you would be risking that the price of bitcoin be rising while you own fiat.

Your example is an example as to how you could maximize your tax liability however people tend to do the opposite and try to make their tax liability as low as possible.

Isn't minimizing your tax liabilities equivalent to avoiding taxes? so it's pretty much a criminal act...

I did not know that tax system is so ambiguous. It's clearly not created by mathematicians and programmers but by stupid politicians instead.

Evil masquerading as stupid to get away with being evil.

[troisky]

All of this shit is boring. I hate being an adult.

[leannemckim46]

Isn't minimizing your tax liabilities equivalent to avoiding taxes? so it's pretty much a criminal act...

I did not know that tax system is so ambiguous. It's clearly not created by mathematicians and programmers but by stupid politicians instead.

Minimizing your tax liabilities is exactly avoiding taxes but in a legal way.

The tax code has many ways that people can legally reduce their tax liability. One popular example is to put money in a 401(k) account. The person does not need to pay taxes on the money that is put into this account, thus reducing their tax liability in a non-criminal way.

There are probably thousands (if not tens of thousands) of other, yet more complicated ways to reduce your tax liability in legal ways.