Elon Musk revealed late Tuesday that Tesla will officially begin accepting bitcoin as payment for its US vehicles
The move, first announced by Musk a month and a half ago, is a major development in the world of cryptocurrencies. Investors who have been watching the Bitcoin rally in recent months can now exchange their crypto with one of the coolest cars on the market.
But trading in bitcoin for a Tesla is not as simple as depositing a credit card. There are major tax implications for buyers – especially for those who have invested early in bitcoin and have since watched their holdings grow exponentially.
In fact, buying a new Tesla using bitcoin can be 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 that different from selling it, and selling it is subject to capital gains tax.
The IRS classifies bitcoin and other cryptocurrencies as property, so when you sell or exchange it for a product, you have to pay taxes on its appreciation in value, 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’ll need to report capital gains for the transaction.
“What you have there is a $ 47,000 capital gain,” Ryan Losi, a certified public accountant (CPA) with Piascik, told CNBC Make It. “The IRS will analyze the fair value of the currency on the exchange date and compare it to your tax base, which is the date bitcoin was purchased.”
The amount of tax you will pay for the transaction depends on how long you have held the bitcoin. If you have held 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 people who make a single deposit, 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 worksheet can help you do the math.
If you have held your crypto for less than 12 months, you will pay short-term capital gain rates that are the same as your normal income tax rate.
This means that if you don’t earn less than $ 40,000 a year, you can expect a tax of at least 15% on your new Model 3.
Check it out: Want taxes on your bitcoin? The answer depends on when you bought and sold
Do not miss: The best credit cards for construction credit in 2021