To contact him directly with additional questions, click this link Ernest L. Tomkiewicz, CPA
Cryptocurrencies like Bitcoin and Ethereum are treated as an asset for tax purposes. As such, there is a taxable event triggered when they are used to pay for goods or services. It’s the same as if you sold it at that moment at the price paid for the goods received. You are now involved in a transaction that creates a capital gain or loss for tax purposes.
Here’s an example of purchasing a $1,000 laptop with Ethereum coin(s) and how it is reported on your Form 1040.
You purchase 0.50 Ethereum for $850. One month later, your 0.50 increases in value to $1,000. That day you buy a laptop for $1,000 via the 0.50 ETH. Did you incur capital gain or loss?
Yes, this purchase created a taxable event, a capital gain.
The gain is calculated as:
$1,000 proceeds (price at sale, or transfer) less cost paid $850, $150 is your short-term capital gain. If you had held the ETH for more than one year before buying the laptop, it would be long-term capital gain.