The latest in the Bitcoin tax grab. Bloomberg’s Richard Rubin and Carter Dougherty explain how the IRS has made it more difficult for Bitcoin users to make purchases by classifying the crypt0-currency as property for tax purposes.
The U.S. government will treat Bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue.
Today’s IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.
The IRS, faced with a choice of treating Bitcoins like currency or property, chose property. That decision could reduce the volume of transactions conducted with the virtual currency, said Pamir Gelenbe, a venture partner at Hummingbird Ventures, which invests in technology businesses.
“It’s challenging if you have to think about capital gains before you buy a cup of coffee,” he said.