Elon Musk revealed on Tuesday that Tesla will officially begin accepting bitcoin as payment for its vehicles in the U.S.
The move, which Musk first announced a month and a half ago, is a major development in the cryptocurrency world. Investors who have seen bitcoin rise in recent months can now exchange their encryption for one of the hottest cars on the market.
But exchanging bitcoin for a Tesla is not as simple as opening a credit card. There are important tax implications for buyers – especially those who invested in bitcoin in the beginning 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 in cash.
That’s because, in the eyes of the Internal Revenue Service (IRS), spending your bitcoin is not so different from selling it, and selling it makes you subject to capital gains taxes.
The IRS classifies bitcoin and other cryptocurrencies as property, so when you sell or exchange for a product, you have to pay taxes on its appreciation, similar to when you sell 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 will have to report capital gains on the transaction.
“What you have there is a capital gain of $ 47,000,” Ryan Losi, certified public accountant (CPA) at Piascik, told CNBC Make It. and compare it to your tax base, which is the date that bitcoin was purchased. “
The amount of tax you will pay on the transaction depends on how long you kept the bitcoin. If you have owned it for more than a year, you will pay a long-term capital gains tax rate on your profit, which is determined by your income. For single filers, the capital gains tax rate is 0% if you earn up to $ 40,000 per year, 15% if you earn up to $ 441,450 and 20% if you earn more than that. This IRS spreadsheet can help you do the math.
If you have had your encryption for less than 12 months, you will pay short-term capital gains fees, which are equal to your normal income tax rate.
This means that unless you earn less than $ 40,000 a year, you can expect at least a 15% tax reduction on your new Model 3.
Output check: Do you owe taxes on your bitcoin? The answer depends on when you bought and sold
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