This article was originally published by Eaglebrook Advisors and has been republished on forvis.com with their permission.
"Virtual currency,” aka digital assets or cryptocurrency, is considered “property” according to the IRS. The tax treatment of virtual currency transactions is typically determined by how the taxpayer intends to use the digital asset. For tax purposes, digital asset transactions held for investment are treated similarly to security (stock) transactions. Currently, the wash sale rule does not apply to digital assets due to their designation as property.
Digital asset regulation is still ambiguous in the U.S., so the taxation may not always be straightforward. We must look to similar scenarios in the tax law and tax court cases to apply them as best we can to digital assets. One common misconception is that all digital asset transactions result in a capital gain or loss; this is not true. The rate at which your income/loss is taxed is determined by the character of the gain or loss and is generally higher if it is not a capital gain or loss.
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