Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan • Hacker News Board

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#11

Post by stakecounter » Thu, Dec 21, 2017, 4:05 PM UTC

Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies?

Scenario:

1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC.

2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC.

Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis between BTC/USD.

Option 2: I’ve incurred a gain, because I traded directly from ETH to BTC, and the relative value between ETH and BTC has gone up.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#12

Post by chollida1 » Thu, Dec 21, 2017, 4:10 PM UTC

stakecounter wrote: post #11

Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies? Scenario: 1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC. 2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC. Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis…

It's driven off whats called your dollar cost average.

So in your scenario

Buy 1 ETH for say $500, your cost base is $500.

If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at that moment.

If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500 then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100 of capital gains.

What bitcoin is worth is irrelevant until you sell the bitcoin.

EDIT Just assume that every transaction between crypto currencies has an implicit, convert to USD first and then buy the other Crypto with USD.

Also, There is always a USD price, what the price is, is a bit of an art, but its what ever price you can convince the IRS of.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#13

Post by reaperducer » Thu, Dec 21, 2017, 4:12 PM UTC

So... Bitcoin people complain that it's not taken seriously as a real currency. Then when it is, with all the associated regulatory and tax ramifications, they complain about that, too.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#14

Post by KasianFranks » Thu, Dec 21, 2017, 4:12 PM UTC

If you are a U.S. citizen or if you don't do the double Irish like Google and Apple. Typical misplaced understanding of crypto.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#15

Post by ringaroundthetx » Thu, Dec 21, 2017, 4:12 PM UTC

g09980 wrote: post #4

IIRC like-kind treatment was never made available, with the new tax plan or without.

> IIRC like-kind treatment was never made available, with the new tax plan or without.

They never clarified and now they'll never have to.

Like-kind treatment is given to property, with specific exemptions made by the IRS. If the IRS never made an exemption, but it did designate cryptocurrencies as property, then like-kind treatment applies.

Given that cryptographic hashes are the only thing trading in any distributed ledger technology, it doesn't matter what the name plastered on the network is, it would fit existing regulations and case law around like-kind exchange.

Now with the new law change from Congress, the agency or the courts will never have to deal with it if they don't challenge 2017 tax filings.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#16

Post by jclardy » Thu, Dec 21, 2017, 4:15 PM UTC

stakecounter wrote: post #11

Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies? Scenario: 1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC. 2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC. Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis…

Yeah, this is the confusing part for me - moving from BTC to other crypto. Also if it is based on USD price at the time of the transaction...then which one? Coinbase rates can be far different from other exchanges.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#17

Post by xur17 » Thu, Dec 21, 2017, 4:17 PM UTC

Most tax advisers I spoke with recommended against treating this as an in-kind exchange anyways.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#18

Post by toomuchtodo » Thu, Dec 21, 2017, 4:18 PM UTC

squaredpants wrote: post #9

toomuchtodo wrote: post #8

Earlier quoted context omitted.

Know Your Customer, requiring exchanges to provide the necessary data, etc.

What about decentralised exchanges?

Tax evasion rarely works out long term.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#19

Post by jermaustin1 » Thu, Dec 21, 2017, 4:19 PM UTC

stakecounter wrote: post #11

Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies? Scenario: 1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC. 2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC. Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis…

It is the exact same as exchanging mutual funds at your brokerage.

Like an exchange I did just this morning: $10,000 VHDYX -> $10,000 VFIAX.

It creates two orders a sell and a buy. I'm taxed capital gains on the $10k sale (about $600 gain) and the buy has nothing to do with it, until I sell it in 5 years.

Re: Tax-Free Bitcoin-To-Ether Trading in US to End Under GOP Plan

#20

Post by stakecounter » Thu, Dec 21, 2017, 4:20 PM UTC

chollida1 wrote: post #12

stakecounter wrote: post #11

Is the cost basis calculated by the US dollar value of each at the time of the exchange? Or based on the exchange rate of the two currencies? Scenario: 1. I buy 1 ETH for 1 USD when rates are 1 ETH/USD, 2 ETH/BTC. 2. I trade 1 ETH for 1 BTC when rates are 2 ETH/USD, 1 ETH/BTC. Option 1: I’ve incurred a loss, because the sale is reported as first a sale of ETH for USD, then a purchase of BTC at whatever the cost basis…

It's driven off whats called your dollar cost average. So in your scenario Buy 1 ETH for say $500, your cost base is $500. If then trade the 1 ETH for bitcoin, it only depends on what ETH is worth at that moment. If 1 ETH is now worth $400, then you have a $100 loss, if ETH is worth $500 then no taxable gain or loss, if 1 ETH is wroth $600 then you owe tax on $100 of capital gains. What bitcoin is worth is irrelevant…

Thanks - given your comment it sounds like option 1 mentioned above where gains are calculated based off of USD value even if the currencies are traded directly. But as another commenter mentioned, I don’t see how this can work because the trade doesn’t involve USD at all, and the exchange rate for USD/ETH may vary widely between exchanges. And for more niche cryptocurrencies, a USD value may not even exist because there are no trades between USD and that currency.