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You may know that you can now buy a Tesla with Bitcoin.
Elon Musk, CEO of Tesla, announced late Tuesday that it is now possible to buy Tesla vehicles in the US with Bitcoin.
“You can now buy a Tesla with Bitcoin,” Musk tweeted.
If you like the idea, here’s a twist: the tax officer hovers with an outstretched palm.
When you use Bitcoin to buy goods or services, you are actually selling that cryptocurrency. And for tax purposes, the IRS treats Bitcoin and its brothers as property that can be sold with either a profit or a loss, depending on whether it is worth more or less than when you purchased it.
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“It’s really important to know the cost base of any cryptocurrency – the value when you bought it – and when to do it,” said Garrett Watson, senior policy analyst at the Tax Foundation. “That will determine how much is taxable and what tax rate you pay.”
Currently, a bitcoin is worth about $ 56,000, compared to about $ 6,700 a year ago. Last month, Tesla announced it had purchased $ 1.5 billion worth of Bitcoin and will soon be accepting Bitcoin as a means of payment for its electric vehicles, which range from about $ 38,000 for a Model 3 to about $ 80,000. Dollars for a Model X are fitted. according to Edmunds.com.
If you are using Bitcoin that you have held for a year or less, any increase between its value when you bought it and the time you use it to make a purchase will be considered short-term gain and will be taxed at normal income tax Rates that range from 10% to 37% depending on total income.
Note that depending on your other income and the amount of short-term gain, you may get into a higher tax bracket. For example, if you had taxable income of $ 40,000 without the Bitcoin transaction, the highest rate you would pay for it would be 12%. Adding that a Bitcoin profit of $ 10,000 would take you to the next tax bracket, which has a marginal rate of 22% for incomes over $ 40,525.
If you had held the Bitcoin for more than a year at the time of purchase, you would be taxed at long-term capital gains rates which are either 0%, 15% or 20% depending on the case in which your income falls.
One way to lower taxation on capital gains is to use other investment losses against it.
“If you have capital losses elsewhere, it can minimize your net tax burden,” said Watson.
Generally, if you have more losses than profits, you can use up to $ 3,000 per year to offset other income from your federal taxes and carry additional amounts forward to future years.
Tesla has a place on its website that has some details on how to deal with Bitcoin purchases. The company did not respond to an email request for additional information.