Bought 5k in crypto currency and it increased to 10k, then withdrew original invest that is not a gain is it? What if the original 5k was exchanged for another crypto?

[sschultz1983]

I invested 5k in crypto and have not withdrawn, but have exchanged for other crypto,  can I exchanged up to 5k(original investment) without reporting a gain? 

[MichaelDC · Accepted solution]

Yes. That is a capital gain. Each trade must be reported separately, each trade being either a gain or a loss.

Stockbrokers issue a form 1099-B that tracks the purchase price and sales price of your stocks to make tax reporting easier.  Because cyrptocurrency exchanges are not required to do this, you need to keep really good records of all your transactions so you can determine the cost basis of the coins you convert to cash or tangible assets.  If you are audited and don't have adequate proof of your basis, the IRS can determine that the entire proceeds is a taxable gain.

Capital gains/losses are reported as part of Schedule D. Here’s what to do:

1.       Sign in to TurboTax and select the Take me to my return

2.       Search for “Schedule D” and then select the “Jump to” link in the search results.

3.       Now follow the screens to enter your info.

When recording your transactions include:

·         When you acquired the coins and how much you paid.

·         When you sold the coins and how much you received.

You must do this for every trade you made. If you bought coins at different prices or sold partial amounts, then you must keep track and record the difference of what you sold. You can do this yourself in Excel or another spreadsheet. There are also new services that are specializing in the conversion, which you can find online. You can import all your trading, spending and mining, and then create a file to import or include with your taxes.

[sschultz1983]

So even though I’ve already been taxed in the initial 5k investment when I withdraw all the money I will be taxed on it again?

[TomYoung]

You haven't been "taxed in the initial 5k investment", you will only be taxed on your gain.

Your exchange of half your original purchase of crypto currency is a "sale" for income tax purposes.  The "proceeds" of the sale is is:

    (# of new crypto coins received) x (spot price in US Dollars at the time of the transaction of the new crypto coins)

From that you subtract your basis in the coins given up, which is about $2,500 according to what you've posted. 

You are taxed on the resulting gain only, which seems to have been right around $2,500, in your example.

When and if you sell your remaining "original" crypto coins, either exchange them for US Dollars or some other crypto coin, you'll go through the same exercise of determining your gain, (or loss), by deducting the remaining $2,500 basis in your original crypto coin from the proceeds of this second sale.

All in all when you get rid of all your original crypto coin you'll deduct that original $5k basis and only pay tax on any actual GAIN.

Tom Young