To calculate your gain or loss when you sell virtual currency for real currency, you need to determine the difference between your adjusted basis in the virtual currency and the amount you received in exchange for the virtual currency. This calculation should be reported on your Federal income tax return in U.S. dollars.
- Determine Adjusted Basis: The adjusted basis of your virtual currency is generally the amount you paid to acquire it, including any fees or commissions. If you received the virtual currency as payment for goods or services, your basis is the fair market value of the virtual currency in U.S. dollars as of the date you received it.
- Calculate Amount Received: The amount you received is the fair market value of the real currency you received in exchange for the virtual currency, measured in U.S. dollars.
- Compute Gain or Loss: Subtract your adjusted basis in the virtual currency from the amount you received. The result is your gain or loss.
- [
\text{Gain or Loss} = \text{Amount Received} - \text{Adjusted Basis}
] - Report the Gain or Loss: Report the gain or loss on your Federal income tax return. If the virtual currency was held as a capital asset, the gain or loss is a capital gain or loss. If it was not held as a capital asset, the gain or loss is ordinary.
For example, if you bought 1 Bitcoin for $10,000 and later sold it for $15,000, your gain would be:
[
\text{Gain} = $15,000 - $10,000 = $5,000
]
This $5,000 gain should be reported on your tax return in U.S. dollars.
For more detailed information on gains and losses from sales or exchanges, you can refer to IRS Publication 544, "Sales and Other Dispositions of Assets."
Sources:
Notice 2014-21
Rev. Rul. 2019-24
Publication 544 (2023)
