@NCperson wrote:
@TomD8 - thank you for that link
Q14 and Q16 - use of virutal currency to pay for goods (Q16) and services (Q14) results in a reportable gain / loss
@Opus 17 - do you agree?
See below. There is a difference between personal property and investment property. You can have a technical capital loss on the sale of personal property, but it is not tax deductible. The question is whether the cryptocurrency in question is investment property or personal property.
See Q19
A19. Yes. If you transfer property held as a capital asset in exchange for virtual currency, you will recognize a capital gain or loss. If you transfer property that is not a capital asset in exchange for virtual currency, you will recognize an ordinary gain or loss. For more information on gains and losses, see Publication 544, Sales and Other Dispositions of Assets.
Publication 544 pg 20
Personal-use property. Generally, property held for personal use is a capital asset. Gain from a sale or exchange of that property is a capital gain. Loss from the sale or exchange of that property is not deductible. You can deduct a loss relating to personal-use property only if it results from a casualty or theft.
Publication 544 pg 34
Personal-use property. Report gain on the sale or exchange of property held for personal use (such as your home) on Form 8949 and Schedule D (Form 1040), as applicable. Loss from the sale or exchange of property held for personal use is not deductible. But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, report the transaction on Form 8949 and Schedule D, as applicable, even though the loss is not deductible. See the In- structions for Schedule D (Form 1040) and the Instructions for Form 8949 for information on how to report the transaction.
Here is IRS notice 2014-21:
https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21
Q–6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A–6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
Q–7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency?
A–7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.
