Question

Research Problem 4. Your friend Hui is an investor in bluecoin, a virtual currency. Indicate whether and how she is subject to Federal income taxation in the following circumstances.

1. Earns $1,000 in bluecoin from mining.

2. Purchases $1,000 in bluecoin from another friend.

3. Sells the purchase in part (b) in the market to a third party for $1,400.

4. Spends $1,000 of bluecoin to acquire an asset worth $1,500.

5. Spends $1,000 of bluecoin to acquire an asset worth $750.

6. Holds bluecoin that she bought in February for $1,000. On December 31, the bluecoin is worth $1,200.

Answer 1

1. Earns $1,000 in bluecoin from mining.

Anything purchased using a digital currency is liable to be taxed as a capital gain whether short or long term depending on how long the asset was held. Taxable

2.Purchases $1,000 in bluecoin from another friend.

Anything purchased using a digital currency is liable to be taxed as a capital gain whether short or long term depending on how long the asset was held. Taxable transactions include:

Exchanging crypto currency for fiat money, or cashing out

Paying for goods or services such as using Bitcoin

Exchanging one cryptocurrency for another cryptocurrency

Receiving mined or forked cryptocurrencies

3. Sells the purchase in part (b) in the market to a third party for $1,400.

Purchased for $1000 and sold it for $1400. So $400 will come under tax bracket

4. Spends $1,000 of bluecoin to acquire an asset worth $1,500.

Anything purchased using a digital currency is liable to be taxed as a capital gain whether short or long term depending on how long the asset was held.

5.Spends $1,000 of bluecoin to acquire an asset worth $750.

Declaring a loss and getting a tax deduction is relevant only for capital asset trades or for-profit transactions. They can’t declare this a loss on their tax forms.

6.Holds bluecoin that she bought in February for $1,000. On December 31, the bluecoin is worth $1,200.

Anything purchased using a digital currency is liable to be taxed as a capital gain whether short or long term depending on how long the asset was held.