Elon Musk at a 2015 event to launch the new Tesla Model X Crossover SUV in Fremont, California.
Justin Sullivan | Getty Images News | fake images
You may know that you can now buy a Tesla with bitcoin.
Tesla CEO Elon Musk announced Tuesday night that it is now possible to buy Tesla vehicles in the US with bitcoin.
“Now you can buy a Tesla with bitcoin,” Musk tweeted.
If the idea appeals to you, here’s a twist: The tax collector will be hanging palms out.
When you use bitcoin to buy goods or services, you are in fact selling that cryptocurrency. And for tax purposes, the IRS treats bitcoin and its siblings as property whose sale carries a profit or a loss, depending on whether it is worth more or less than when you acquired it.
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“It’s really important to know the cost basis of any cryptocurrency, the value when you bought it, and when it was produced,” said Garrett Watson, a senior policy analyst at the Tax Foundation. “That is going to determine how much you are taxed and what tax rate you are paying.”
Right now, a bitcoin is worth around $ 56,000, up from $ 6,700 a year ago. Last month, Tesla announced that it had purchased $ 1.5 billion in bitcoin and would soon begin accepting bitcoin as a form of payment for its electric vehicles, which have starting prices of about $ 38,000 for a Model 3 to about $ 80,000 for a Model X, according to Edmunds.com.
If you were to use bitcoins that you’ve had for a year or less, any increase between its value when you bought it and when you used it to make a purchase is considered a short-term gain and would be taxed with ordinary income tax. fees, which range from 10% to 37%, depending on your total income.
Keep in mind that depending on your other income and the amount of the short-term gain, you could be pushed into a higher tax bracket. For example, if you had $ 40,000 in taxable income without the bitcoin transaction, the highest rate you would pay would be 12%. If you were to add a bitcoin profit of $ 10,000 to that, it would push you into the next tax bracket, which comes with a 22% marginal rate for income above $ 40,525.
On the other hand, if you had had the bitcoin for more than a year when you made the purchase, you will be taxed at long-term capital gains rates, which are 0%, 15%, or 20%, depending on which one. tax bracket in which your income is included.
One way to reduce capital gains taxes is to use other investment losses against you.
“If you have capital losses elsewhere, it’s a way to minimize your net tax bill,” Watson said.
If you have more losses than gains, you can generally use up to $ 3,000 a year to offset other income on your federal taxes and carry over additional amounts to future years.
Tesla has a space on its website that provides some details on how it will handle bitcoin purchases. The company did not respond to an email inquiry for additional information.