I have invested $600 in virtual currency. Does that makes me eligible for tax ? I have not sold all of it but few less than $200.

[Carl]

WHen dealing with investments, nothing get reported until you sell or otherwise dispose of the investment. If you sell and make money on the investment, you have income to report that may or may not be taxable. (Depends on the type of investment.)  If you sell and take a loss on your investment, then you have a loss to report. But again, while it may be reportable on your tax return, weather it's a tax deductible loss depends on the type of investment.

[Opus 17]

Cryptocurrencies are treated as capital assets just like if you bought and sold collectibles or gold coins.  You have to pay tax if you have a gain.  

The gain has to be calculated for each asset.  For example, let's say you bought 0.1 BTC in January for $500, and 0.1 BTC in June for $1200, and sold 0.2 BTC in December for $3200.  You would have a capital gain of $1500, and it would be a short term gain since you held the assets less than one year.

However, suppose you only sold 0.1 BTC in December for $1600.  Which coin did you sell?  The one you bought in January for an $1100 gain?  Or the one you bought in June for a $400 gain?  You can pick which one to sell and pay tax on, but this requires that you keep excellent records of every transaction.

Stock brokers send a 1099-B statement that contains all of this information, but cryptocurrency exchanges are not currently required to send such statements.

This means that your reporting is on the honor system.  But the IRS has sued exchanges before for their customer records.  And every transaction is recorded forever in the blockchain ledger.  So you should probably make your best honest effort to report your gains from trades.

[dineepthomaslsu]

Thanks, a lot that did help. One last thing what happens in a scenario where you buy BTC from 'X' country bring it to 'Y' country and sell it. How do we define capital gain/loss in this situation? Is it like we need to convert foreign currency at the time of buying to that of country 'Y' and then calculate? Thanks, in advance.

[TomYoung]

If you're a US taxpayer then your "X country" purchase has to be translated to dollars a that date (if you didn't purchase with US dollars) and your "Y country" sell has to be translated to dollars.

Bought some bitcoin with 120,000 Mexican pesos?  Translate 120,000 pesos into dollars on the day of trade.  Sold all that bitcoin for 400,000 Indian Rupee?  Translate those 400.000 rupees into dollars on the day of the trade.