Let's attempt to draw a conclusion here:
- I believe some of the threads here are attempting to take a position that would never prevail if challenged.
- The IRS is generally going to "couch" their responses, especially in FAQs
- As noted in the FAQ, crypto is treated as property (FAQ #2); referred to as virtual currency in the FAQ.
- FAQ #4 is the key, in which the IRS states that selling crypto for "real" currency generates a recognition event and will produce a gain or loss.
- Somewhere along the line in the responses here, because Pub 544 is referenced, there is a stretch that there could be an argument that crypto could be personal property and no loss allowed. Not a position that would prevail.
- Personal-use property are items such as your car, TV, home, most jewelry, etc. These items are, in general, not purchased as investments. Yes, in general these items are capital assets, but the regulations do not allow a loss upon sale.
- @stvnguan you would report any gain or loss upon the sale of your crypto; turning the virtual currency into real currency, which you in turn use to purchase a watch, which in most cases, will be personal-use property. Whether at this point you are purchasing the watch as an investment is beyond the scope of the question and forum.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
