If I pay someone back by sending BTC from my wallet to theirs, and the BTC is worth less than when I bought it, can I claim a capital loss even though I never sold BTC?

[Opus 17]

@NCperson 

The dichotomy is that some users argue that cryptocurrency losses are always deductible, no matter what the CC is used for and no matter how it was held.  In other words, if you take a loss on a coffee at Starbucks, its a deductible loss.

Some users argue that CC losses are only deductible if the CC was held for investment purposes. (This is my position.)

I think you have advanced a hybrid position that if CC is used to purchase an investment, a loss is deductible.  

I am not qualified to comment further than I have previously.  As always, hiring your own professional accountant to give you advice, who will represent you at audit, may be preferable to taking advice from random people on the internet.  

[NCperson]

@Opus 17 

<< I think you have advanced a hybrid position that if CC is used to purchase an investment, a loss is deductible.  >>

not sure where I did that and if so was unintended....

trading CC for US currency is a trade, but not an investment, but it does close out the investment position on the CC.

If CC is used to purchase an investment doesn't create a loss; only the eventual sale of that investment creates a loss  - I know you know that - just strugging with how I advanced a hybrid position, even unintentionally

thx 

[stvnguan]

@Opus 17 @NCperson 

I know we've discussed this already, but according to question 16 on https://www.irs.gov/individuals/international-taxpayers/freque[product key removed]ions-on-virtual-c..., you recognize a capital gain or loss if you exchange virtual currency held as a capital asset (which is what I am doing) for other property, "including for goods...". This would directly contradict what you are both saying. Look up a definition of "good" - it is NOT defined as "something held for investment" or similar. The Q&A on this is extremely clear.

It simply does not matter what kind of good you are trading virtual currency for, it only matters if your virtual currency ITSELF is being held for personal use or for investment. Seeing as I have no clue how to use BTC as a personal use item (seriously, how could that be done?), it is clear that I am allowed to claim a capital loss.

[Opus 17]

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@NCperson wrote:

@Opus 17 

<< I think you have advanced a hybrid position that if CC is used to purchase an investment, a loss is deductible.  >>

not sure where I did that and if so was unintended....

trading CC for US currency is a trade, but not an investment, but it does close out the investment position on the CC.

If CC is used to purchase an investment doesn't create a loss; only the eventual sale of that investment creates a loss  - I know you know that - just strugging with how I advanced a hybrid position, even unintentionally

thx 

---

Because my understanding is that every time you convert out of CC into something "real" (including official fiat currency, goods or services, or even other CC), that is a taxable event, no matter what is purchased.  In other words,

• If you convert from BTC to Etherium, that's a reportable event.  You recognize a gain or loss on the US$ value of the conversion on the BTC on the day of the trade, and the basis of your new Etherium is the price on the day of the conversion, you don't carry forward your original basis in BTC.
• If you sell BTC to buy a coffee, that is a taxable event and you have a gain or loss based on the US$ value on that day.
• If you sell BTC to buy investment property, that is a taxable event and you recognize a gain or loss on the US$ value of the BTC at the time of the trade, even if the thing you buy is an investment.  Your basis in the investment property is the US$ value on the day of the purchase, and not the original basis in the BTC.

At least, that is my understanding. 

[Opus 17]

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@stvnguan wrote:

@Opus 17 @NCperson 

I know we've discussed this already, but according to question 16 on https://www.irs.gov/individuals/international-taxpayers/freque[product key removed]ions-on-virtual-c..., you recognize a capital gain or loss if you exchange virtual currency held as a capital asset (which is what I am doing) for other property, "including for goods...". This would directly contradict what you are both saying. Look up a definition of "good" - it is NOT defined as "something held for investment" or similar. The Q&A on this is extremely clear.

It simply does not matter what kind of good you are trading virtual currency for, it only matters if your virtual currency ITSELF is being held for personal use or for investment. Seeing as I have no clue how to use BTC as a personal use item (seriously, how could that be done?), it is clear that I am allowed to claim a capital loss.

---

I don't believe I have said anything different.  You recognize a gain or loss when you exchange cryptocurrency for any other property for any reason.

However, recognizing a loss and taking a tax deduction for that loss are separate under the law.  If you sell personal property (your used bicycle, for example) for less than you paid for it, you have a loss, but it is not tax deductible.  If you sell investment property (gold coins, for example) for less than you paid, that also creates a loss, but that loss is tax deductible.  This is settled law and non-controversial, although there have been tax court cases where the IRS and the taxpayer disagree over whether a particular piece of property was personal or investment.  (For example, if you bought land hoping to resell it to a developer at a profit, but it decreased in value instead, you can deduct the loss.  However, the IRS might determine at audit that you bought the land to build a second home, which is personal, so it wasn't really an investment.  That's how it can end up in court.)

Where we so-called "Champs" disagree is whether cryptocurrency losses are always deductible, or only deductible if the cryptocurrency is held for investment purposes.  I'm sorry to confuse you, and I don't have anything to add on that particular point of disagreement beyond the comments I previously posted.  

[stvnguan]

@Opus 17 Thanks for the clarification. However, the definition of "recognize a loss" (which is the wording they use in the Q&A) is that you can deduct the loss from your taxes. You may be thinking of "realize a loss" which means what you've been saying: a realized loss may have no impact on taxes depending on personal-use, etc.

Since they use "recognize", it is clear that virtual currency losses are always deductible when exchanged for goods and services.

[Rick19744]

My position is that with every CC transaction there will be two events:

• the conversion of CC, virtual currency, into real currency.  At this point you will have a recognized gain or loss event (first event).
• then the purchase of the item; this could be the watch, could be services, etc. (second event).
• there are no like-kind or barter provisions that would change the above result.  Just because you "exchanged" your CC for a watch, you still have a recognition event on the CC since you no longer own or possess it (disposition of an asset).  Your watch, in this example, takes a basis of the value of the CC at the time of the transaction.
• In summary, a taxable event occurs when there is a sale or disposition of an asset.  With CC, a taxable event occurs whenever it is traded for cash or other cryptocurrency OR whenever CC is used to purchase goods or services.  As noted in bullet 3, in your case, you had a disposition since you no longer hold the CC as you used it to purchase the watch.

[lodep098]

Now BTC is falling down extremaly. And we save some money on transaction, but loose on its price. I've read some investors' ideas in this article. Maybe, it'll be useful for you