Long Term or Short Term Capital gain

[ahmed_aly_1990]

I want to check the following scenario:
If someone bought one Bitcoin On May 5th 2020
then he bought another one Bitcoin on September 5th 2020.
Then He decided to sell one Bitcoin on August 5th 2021.
Will this be considered a Long-term or Short-term gain when it comes to Tax filing for 2021?
Generally, if someone regularly buy and sell a certain stock or Crypto. When he sells stocks or crypto, will the sold amount be deducted from the first purchased amount or not (will it be considered as Long-Term or not?)?

[JohnB5677 · Accepted solution]

Unless you make a specific election to change your method of accounting it will be First In First Out (FIFO).

So in your scenario the Bitcoin purchased on 05/05/2020 will be sold on 08/05/2021.  It will be considered a Long Term Capital Gain, and it will be included on your 2021 tax return.

The Bitcoin purchased on 08/05/2020 is still open and will not be reported until it is sold.

[fanfare]

@JohnB5677 

Coinbase doesn't provide a Form 1099-B to its users, so there's no way to make any  FIFO election.

[DanielV01]

@ahmed_aly_1990  @JohnB5677 is correct:  The IRS presumes FIFO on your transactions.  Since cryptocurrencies are not securities, however, you are not bound to use FIFO.  Many use LIFO or an "optimization" method.  While technically speaking there is no "form" to report the election, you can submit a statement or use Form 8275 to disclose your election.  Whatever method you use, you must be consistent with all of your transactions.  The IRS has not clarified whether or not you are bound to a specific method year-over-year, so whatever method you use, the best is to make a statement and disclose it, and keep a documentation for your records.  (Most exchanges are capable of calculating the different treatments available).

[SunCal7]

Can I ask you a question about this? I decided to use LIFO in a crypto accounting program for 2020 and now I want to sell my oldest BTC doing FIFO for 2021 to get long term capital gains. I originally chose LIFO due to going in an out of ETH when buying other alt coins. My LIFO vs FIFO was only a difference of 1K in 2020. I would like to change to FIFO from here on out and to do that I have been told I need to use FORM 3115 and see if the IRS approves it. My crypto tax program has a tab that allows for switching between FIFO and LIFO. If I change from LIFO to FIFO, I see the major changes and figure it picks up that 1K from 2020 plus all. I do see on FORM 8949 that it does not specify to the IRS LIFO or FIFO. If the IRS presumes FIFO as you mention and that "you are not bound to a specific method year-over-year," could I FIFO in the tax program and submit Form 8275  to disclose the change or since I have already done LIFO, is it best to do FORM 3115? 

[fanfare]

You are not bound by FIFO.

As long as your records are kept accurately, associate the buys and sells as you wish.

There is no 1099-B to contradict you.

Form 3115 has nothing to do with this.

IRS says:

"Specific share identification. If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure your gain or loss."

[SunCal7]

Thank you!

[milwik]

For calculating basis, I am wanting to view my pile of Bitcoin as a single pile for FIFO, even though it may be actually be spread and moving among several different wallets and exchanges.

Example: 

   Buy 1 BTC on exchange A in Jan 2020 for $30K.      [EX_A: 1, EX_B: 0; Total pile 1]

   Buy 1 BTC on exchange B in Feb 2021 for $50K.     [EX_A: 1, EX_B: 1; Total pile 2] 

   Sell 1 BTC from exchange B in March 2021.              [EX_A: 1, EX_B: 0; Total pile 1] 

Using FIFO, we have a LONG TERM gain with basis of $30K, even though exchange B ***thinks*** it should be a SHORT TERM gain with $50K basis.  Right?  

I ask because stocks/equities don't behave this way, rather they are viewed as separate piles in separate brokerage accounts with no connection. 

Does CoinBase, BinanceUS, etc. report a basis to the IRS?

Thanks in advance!

[DianeW777]

Yes. Long term would apply for the sale of your January 2020 sale if it was sold more than one year after purchase. You definitely trade/sell using the first-in first-out (FIFO) method unless you specifically state which batches you will sell. And you must track that for IRS review should you need to provide proof.

Yes. Currently, CoinBase sends Forms 1099-MISC to users who are U.S. traders and made more than $600 from crypto rewards or staking in the last tax year.  This is considered cost basis for these transactions.  As far as Form 1099-B you will know if the cost basis is reported to the IRS if it is listed on your forms from the cryptocurrency companies. If you see it there, then the IRS has the same copy. 

@milwik