The US tax authority on Tuesday ruled that bitcoin will be taxed as property, like stocks or real estate, rather than as a basic currency like the US dollar.
Issuing the ruling just weeks before the April 15 deadline for paying last year’s taxes, the US Internal Revenue Service (IRS) may have dealt a setback to those wanting the online money to be officially recognized as a currency, like the US dollar.
However, the ruling benefited investors who could end up being taxed at a lower rate on gains they make from trading virtual currencies like bitcoin.
“In some environments, virtual currency operates like ‘real’ currency,” the IRS said. “But it does not have legal tender status in any jurisdiction.”
As property, the gains made on bitcoin and other virtual currencies sold after being held for more than a year would face a tax of 15 percent or 20 percent, depending on the person’s level of income.
However, any gains on bitcoin traded in less than one year will be treated as income, which can be taxed at a significantly higher rate.
The IRS also made clear that anyone paid for services in bitcoin or other virtual currencies have to report it as income.
It said that in reporting, the taxpayer would have to value bitcoin in US dollars based on “fair market value,” possibly using the rate on an exchange.
Meanwhile, failed bitcoin exchange Mt. Gox yesterday said it has submitted “electronic records” and other documents to the Tokyo police after it collapsed last month admitting losing 850,000 coins, worth nearly US$500 million at the time.
“Mt. Gox Co consulted with the metropolitan police department with regard to the disappearance of bitcoins,” the company said in a statement issued under the name of its representative director, Mark Karpeles.
“It has submitted necessary electronic records and other related documents,” it said, adding the firm “intends to fully cooperate with each competent authority.”
The announcement could indicate Japanese police have launched a criminal investigation into the huge loss of the digital currency.
The company filed for protection under US bankruptcy law earlier this month, 10 days after doing the same in Japan.