To determine your basis in property received in exchange for virtual currency, you need to establish the fair market value of the property at the time of the exchange. Specifically, your basis in the property is its fair market value at the time of the exchange. This is consistent with general tax principles applicable to property transactions.
Here is the legal reasoning and rationale behind this determination:
- Fair Market Value at Time of Exchange: According to the IRS FAQ, if you transferred virtual currency to someone and received other property in exchange, your basis in that property is its fair market value at the time of the exchange. This means that the value of the property you receive is determined by what it would sell for on the open market at the time you receive it.
- General Tax Principles: This approach aligns with the general tax principles that apply to property transactions. For instance, when property is exchanged, the basis of the property received is typically the fair market value of the property at the time of the exchange. This ensures that any gain or loss can be accurately calculated when the property is eventually sold or otherwise disposed of.
- Publication 551: For more detailed information on how to compute the basis of assets, including property received in exchange for virtual currency, you can refer to IRS Publication 551, Basis of Assets. This publication provides comprehensive guidelines on determining the basis of various types of property.
In summary, to determine your basis in property received in exchange for virtual currency, you should use the fair market value of the property at the time of the exchange. This value will serve as your basis for future tax calculations related to that property.
Sources:
Rev. Rul. 2019-24
Notice 2014-21
