Elon Musk at a 2015 event for the launch of the new Tesla Model X Crossover SUV in Fremont, California.
Justin Sullivan | Getty Images News | Getty Images
You should be aware that you can now buy a Tesla using bitcoin.
Tesla CEO Elon Musk announced on Tuesday that it is now possible to buy Tesla vehicles in the U.S. with bitcoin.
“Now you can buy a Tesla with bitcoin,” tweeted Musk.
If the idea pleases you, here’s a twist: the tax collector will be hovering with his palms out.
When you use bitcoin to buy goods or services, you are actually selling that cryptocurrency. And for tax purposes, the IRS treats bitcoin and its siblings as property whose sale comes with a gain or loss, depending on whether it is worth more or less than when you acquired it.
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“It is really important to know the cost base of any cryptocurrency – the amount when you bought it – and the timing of it,” said Garrett Watson, senior policy analyst at the Tax Foundation. “This will determine how much you are subject to tax and what tax rate you are paying.”
At the moment, a bitcoin is worth about $ 56,000, up from $ 6,700 a year ago. Last month, Tesla announced that it had purchased $ 1.5 billion in bitcoin and would soon start accepting bitcoin as a form of payment for its electric vehicles, which come with starting prices of around $ 38,000 for a Model 3 at about $ 80,000 for a Model X, according to Edmunds.com.
If you were to use bitcoin you held for a year or less, any increase between its value when you bought it and when you use it to make a purchase is considered a short-term gain and would be taxed by normal income tax rates, which vary 10% to 37%, depending on your total income.
Be aware that depending on your other income and the amount of your short-term gain, you may be pushed into a higher tax range. For example, if you had $ 40,000 in taxable income without the bitcoin transaction, the highest rate you would pay on that would be 12%. If you were to add a $ 10,000 bitcoin gain to that, it would push you into the next tax bracket, which comes with a 22% marginal rate for income above $ 40,525.
On the other hand, if you kept bitcoin for more than a year when you made the purchase, you would be taxed at long-term capital gains rates, which are 0%, 15% or 20%, depending on which tax range you are in. your income fits.
One way to reduce capital gains taxation is to use other investment losses against it.
“If you have capital losses elsewhere, it is a way to minimize your net tax bill,” said Watson.
If you have more losses than gains, you can usually use up to $ 3,000 a year to offset other income on your federal taxes and carry over additional amounts for future years.
Tesla has a space on its website that provides some details on how it will handle bitcoin purchases. The company did not respond to an email inquiry for additional information.