IRS Recognizes Bitcoin as Property — Not Foreign Currency

As the New York Times reported, the IRS has announced that it will treat Bitcoin as property, rather than as a foreign currency, for US federal income tax purposes. The IRS largely based this decision on the fact that the virtual currency is not a designated legal tender of any sovereign governmental jurisdiction.

As a result, any sale, exchange, or other disposition of Bitcoin could give rise to capital gain or loss, rather than foreign currency gain or loss, provided the virtual currency constitutes a capital asset in the hands of the taxpayer. Such dispositions could give rise to long-term capital gain, taxed 20% (but subject to an additional 3.9% “unearned income” tax for most high-income taxpayers). By contrast, foreign currency gains are subject to tax at the rate of 39.6%.