Hi! I totally agree with your logic! But I think the IRS changed a rule on us back in 2017. You had said: But only when you convert it to real money. Up to 2017 I believe, one could exchange one crypto for another and not worry about taxes using the rules about like-kind property. The crypto would only be taxed when sold for USD or when exchanged for a real good or service. They changed that in 2018 from what I have read. Now, every crypto conversion is considered a taxable event, where we must consider the original value of the first crypto and compare that to the value of the 2nd crypto we are getting to calculate our loss or gain in USD for tax purposes.
So, I'm trying to figure out what I'm supposed to do in this scenario. Suppose Coinbase gave me $10 of crypto X for coinbase earn. Then, a little later, I trade that for $12 of crypto Y because X increased in value. But I don't sell. Since I converted however, I think I have to either report it as $10 of income + $2 of gains OR as $0.00 income (it was a gift) but $12.00 of gains once I convert to crypto Y since I paid nothing for the original crypto and now have received $12.00 of bennet from that gift. Either way, I have to report $12.00. About the only way this would make a difference is if I held the original crypto for over a year before exchanging it for another crypto. If I reported the taxable amount of $12 ($0 + $12) when I converted, then I would avoid short term capital gains taxes, where as if I reported the $10.00 gift at the time of receipt and then the $2.00 of gains when I converted, I would be paying short term capital gains on the $10.00.
All this gets very confusing. Purchasing crypto is not supposed to be a taxable event. But airdrops, etc are taxable. But are they taxable upon receipt, or upon being sold for USD or converted to another crypto?
