Tesla purchases through Bitcoin may have tax consequenceswritten by Bella Palmer
The Internal Revenue Service treats virtual currency as property for federal tax purposes in the US
Tesla rolled out its Bitcoin payment option on Tuesday, marking yet another milestone for the electric carmaker. But while paying for electric cars using Bitcoin is an exciting idea, Tesla’s cryptocurrency transactions will have some tax consequences.
CNBC reported that Tesla purchased with Bitcoin might come with “big tax bills.” The Internal Revenue Service (IRS) treats virtual currency as property for federal tax purposes in the US, as per Publication 544. As such, capital gains taxes (CGT) will apply to the purchase of Tesla cars through Bitcoin. However, the amount a person will be taxed might vary and depend on when they purchased their Bitcoin.
Tesla CEO Elon Musk stated that the company would be using only internal and open-source [sic] software to operate Bitcoin nodes directly. Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency, Musk explained on Twitter.
Exchanging Bitcoins for a Tesla without converting to fiat currency may make calculating CGT a little confusing. Because of Bitcoin’s changing value, taxpayers may report gains or losses when using the cryptocurrency to purchase a Tesla.
Bitcoin traded at $6,500 a year ago and a Tesla Model 3 currently costs around $38,000. A person who “trades” his Bitcoin asset from last year for a Tesla Model 3 now would experience a cash gain of $31,500. Bloomberg calculated that such a person would owe a $4,750 tax bill to the IRS for their Tesla Model 3 purchase.
However, the inverse could happen as well. Currently, the price of Bitcoin is about $52,000. If a person trades Bitcoin worth $52,000 for a $38,000 Tesla Model 3, they could report a loss, resulting in a possible tax deduction the following year.
Even though Tesla will not convert the Bitcoin it receives as payment to fiat currency, it will charge customers the equivalent value in US dollar for its vehicles.
If you choose to make a payment using Bitcoin, you must pay an amount of Bitcoin that is of equivalent value to the U.S. Dollar purchase price of the product that you purchase. We will provide you with a US Dollar price for the product or service that you are purchasing, as well as a Bitcoin equivalent price (the “Bitcoin Price”), noted Tesla under the Terms and Conditions of its Bitcoin payment option.
It goes on to say: You must initiate the transfer of the Bitcoin Price to us within the time period that we provide to you together with the Bitcoin Price (the “Bitcoin Price Window”). If you do not initiate the transfer of the Bitcoin Price to us within the Bitcoin Price Window, the Bitcoin Price will expire, and we will provide you with a new Bitcoin Price and Bitcoin Price Window upon your request.
This article is for information purposes only.
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