CRYPTOCURRENCY TAX
TRANSACTION TYPES
🛍
Purchases using Crypto
In certain events, you can spend cryptocurrencies to make purchases. When you spend crypto, it is treated as if you sold the crypto for fair market value.
As such, these events (among others) can generate a capital gain or loss:
- Paying fees on trades, withdrawals and deposits of crypto
- Buying a pizza
- Paying for accountancy services
*Note that this is not an exhaustive list, yet the key to remember is that if you are providing cryptocurrency for goods and services to another person, it is a taxable event.
Example: Sam bought 1 LTC for $10 and bought a hardware wallet for 1 LTC when the price was worth $100. By disposing of the 1 LTC, she experienced a capital gain of $90 (calculated as the sales price of $100 less the cost basis of $10).
Disposals proceeds
“If you exchange virtual currency held as a capital asset for other property, including for goods or for another virtual currency, you will recognize a capital gain or loss.”
Any use of cryptocurrency to pay for goods and services is a taxable event. This could be for a crypto related service or for a “real world” transaction like using crypto to pay for a coffee.
When you pay for goods and services using cryptocurrency, the IRS views that you are effectively exchanging that capital asset for property or service. As such, you must recognize a capital gain or loss, because in exchanging the cryptocurrency, you are disposing the cryptocurrency that you own. A rule of thumb to remember is that the cost of the services you receive is your proceeds, and you would subtract that from the original cost basis of the cryptocurrency you spent. The difference between these amounts would be your capital gain or loss.
If you use virtual currency to purchase property, including goods as part of an ‘arm’s length transaction’, the gain or loss is the difference between the fair market value of the property and your adjusted basis in the cryptocurrency exchanged.
Recap has been designed to work out the capital gains impact of purchasing goods and services using crypto.
- 1.Simply connect your exchange accounts or wallets through our automated integrations or enter your data manually via the user interface or CSV file.
- 2.Recap treats the purchase of goods/services with crypto as if you have sold crypto for USD at market value. All USD valuations of the assets are determined by Recap's own market valuation engine using both foreign and cryptocurrency exchange rates.
- 3.See the tax impact of every purchase (example below) in the tax tab or download a PDF tax report.
An example purchase in Recap
Copy link