Elon Musk revealed Tuesday afternoon that Tesla will officially begin accepting bitcoin as payment for its vehicles in the US
The move, which Musk first announced a month and a half ago, marks a major development in the world of cryptocurrency. Investors who have seen the concentration of Bitcoin in recent months can now exchange their cryptocurrency for one of the hottest cars on the market.
But trading in bitcoins for Tesla is not as simple as leaving a credit card. There are important tax implications for buyers, particularly those who have invested in bitcoin early on and have since seen their holdings grow exponentially.
In fact, buying a new Tesla using Bitcoin can end up being much more expensive than buying one with cash.
This is because, in the eyes of the Internal Revenue Service (IRS), spending your bitcoin is no different than selling it and selling it makes it subject to capital gains tax.
The IRS classifies bitcoin and other cryptocurrencies as property, so when you sell it or exchange it for a product, you will have to pay taxes on its valuation, similar to selling shares.
If you bought a bitcoin for $ 3,000 last March and then used the same currency (now worth more than $ 50,000) to pay for a Tesla this week, you’ll need to report the capital gains from the transaction.
“What you have there is a capital gain of $ 47,000,” Ryan Losi, a certified public accountant (CPA) at Piascik, tells CNBC Make It. “The IRS will examine what the fair value of the currency is on the exchange date and compare it to your tax base, which is the date bitcoin was acquired.”
The amount of tax you will pay for the transaction depends on how long you have kept bitcoin. If you owned it for more than a year, you would pay a rate of long-term capital gains tax on your profits, determined by your income. For single applicants, the capital gains tax rate is 0% if you earn up to $ 40,000 a year, 15% if you earn up to $ 441,450, and 20% if you earn more than that. This IRS worksheet can help you do the math.
If you own your cryptocurrency for less than 12 months, you will pay short-term capital gains rates, which are the same as your normal income tax rate.
This means that unless you earn less than $ 40,000 a year, you can expect at least 15% tax on your new Model 3.
Take a look at: Do you have taxes on your bitcoin? The answer depends on when you bought and sold
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