Purchasing crypto with fiat or any “unrealized appreciation” is not a taxable event according to Thomas Shea, an EY crypto tax executive. “There is new legislation that will require reporting for at least some cryptocurrency transactions, and when those rules go into effect, there will be significant changes,” said Shea.
The EY executive noted that with the increased popularity of crypto, lawmakers are continuously exploring how to generate revenue by taxing and regulating digital assets.
According to Shea, whether one buys or sells crypto influences whether it’s taxable or not. Purchasing crypto with fiat and any unrealized appreciation is not a taxable event. However, the tax executive noted that selling crypto is a taxable event. He explained that “The gain or loss is generally capital in nature” and that this could be taxed.
Even if a holder exchanges their crypto for other assets like Bitcoin (BTC) or Ether (ETH), the EY executive noted that users have a “taxable event and are required to report gain or loss on the disposed crypto.”
The same applies to nonfungible tokens. “If you purchased an NFT with fiat, no taxable event,” . However, purchasing NFTs with crypto is treated very similarly to a crypto-for-crypto exchange. “The gross proceeds less your tax basis in the asset, generally including any associated fees/costs,” said the crypto tax expert.
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