Digital assets

Key Points

• Digital assets, including cryptocurrencies and NFTs, are considered property for US tax purposes.
• Individuals must answer a digital asset question on their tax returns, reporting any transactions involving digital assets.
• Digital asset income is taxable, either as capital gains/losses (if held as a capital asset) or ordinary income/loss (if received for goods/services).

Detailed Summary

• Tax definition of digital assets: Digital assets are any digital representation of value recorded on a cryptographically secure distributed ledger (blockchain) or similar technology.
• Examples of digital assets: Cryptocurrencies (e.g., Bitcoin), stablecoins, and non-fungible tokens (NFTs).
• Disposition of digital assets: Any transaction involving the sale, exchange, or transfer of ownership of digital assets must be reported on tax returns.
• Forms for reporting digital asset transactions: Form 8949 for capital asset disposals, Form 1040 (Schedule 1) for ordinary income, Form 709 for gifts, Form 1040 for employee income, Form 1040 (Schedule C) for business income.
• Basis of digital assets: The cost of the asset in US dollars. The basis is used to calculate capital gains/losses upon disposition.

Conclusions

• Individuals with digital asset transactions must accurately report them on their tax returns.
• Income from digital assets is taxable, and specific forms must be used for reporting different types of transactions.
• It is important to keep accurate records of digital asset transactions and determine the basis for calculating capital gains/losses.