Elon Musk at a 2015 event to launch the new Tesla Model X Crossover SUV in Fremont, California.
Justin Sullivan | Getty Images News | Getty Images
You may know that you can now buy a Tesla using bitcoin.
Tesla CEO Elon Musk announced late Tuesday that it is now possible to buy Tesla vehicles in the US with bitcoin.
“Now you can buy a Tesla with bitcoin,” Musk wrote on Twitter.
If the idea appeals to you, here’s a twist: the taxpayer will wave 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 brethren as property whose sale comes with either a gain or a loss, depending on whether it is worth more or less than when you bought it.
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“It’s really important to know the cost base of any cryptocurrency – the value when you bought it – and when you bought it,” said Garrett Watson, a senior policy analyst at the Tax Foundation. “This will determine how much is subject to tax and what tax rate you pay.”
Currently, a bitcoin is worth about $ 56,000, up from about $ 6,700 a year ago. Last month, Tesla announced it had bought $ 1.5 billion worth of bitcoin and will soon begin accepting bitcoin as a form of payment for its electric vehicles, which come with starting prices of about $ 38,000 for a model 3 to at about $ 80,000 for an X model, according to Edmunds.com.
If you were to use bitcoin that you held for a year or less, any increase between its value when you purchased it and when you use it to make a purchase is considered a short-term gain and would be taxed on ordinary income tax rates, ranging from 10% to 37%, depending on total income.
Keep in mind that depending on your other income and the amount of your short-term earnings, you may be pushed into a higher tax category. For example, if you had taxable income of $ 40,000 without the bitcoin transaction, the highest rate you would pay for it would be 12%. If you were to add a $ 10,000 bitcoin gain to this, it would push you into the next category of taxes, which comes with a marginal rate of 22% for income over $ 40,525.
On the other hand, if you owned bitcoin for more than a year when you made the purchase, you would be taxed at long-term capital gain rates, which are either 0%, 15% or 20%, depending on which tax category in which your income falls.
One way to reduce capital gains tax is to use other investment losses against it.
“If you have capital losses elsewhere, it’s a way to minimize your net tax bill,” Watson said.
If you have more losses than gains, you can generally use up to $ 3,000 a year to offset other federal tax revenues and carry forward additional amounts for years to come.
Tesla has a site on its website that provides some details on how it will handle bitcoin purchases. The company did not respond to an email request for additional information.