Looking to Buy Your Tesla with Bitcoin? Read this First
|Published: 17th April 2021 22:02|
Elon Musk and his upstart automaker made headlines once again recently after he made an announcement on Twitter (where else?) that Tesla would start accepting Bitcoin as payment for its vehicles in the United States. So, is this just another stylish way to pay for the Model S, 3, Y and X, or is there something under the hood?
This is yet another major boost for Bitcoin (not that it needs one considering its recent valuation), but for investors of the crypto, it is a major development. Not only can Bitcoin investors trade their investment for a cool set of wheels after seeing Bitcoin rally for the past few months, but it also cements the cryptocurrency as a serious medium of exchange, similar to, dare we say it – fiat money.
But, before you whip out that shiny credit card, you’d want to read on.
It turns out, trading in your hard-earned Bitcoin for a cool Tesla isn’t going to be as straightforward as buying some other vehicle from a dealership. After doing some digging in the right places, we’ve found that there are some major tax implications for starry-eyed Tesla buyers, especially for those forward-thinking early investors who watched their Bitcoin holdings grow many-fold over the past few years.
According to the pundits, exchanging some of that Bitcoin stash for this futuristic vehicle could end up being more expensive than buying one using cold hard cash. Before you shrug that off as just another Bill Gates-esque rambling on Bitcoin, we could be on to something here.
One of the reasons why market analysts weren’t too thrilled after Elon released the statement via Twitter is because, it turns out, the Internal Revenue Service (IRS) thinks differently. You see, according to the IRS, exchanging your precious Bitcoin for a Tesla (or anything else for that matter) is not all different from selling it. That’s right. And we all know that selling makes said Bitcoin subject to something known as capital Gains Taxes.
This is because the folks at IRS are still classifying cryptocurrencies (Bitcoin included) as property. So, by selling it or exchanging Bitcoin for, let’s say, a car, or a house (or that new bloody shoe), you are slapped with taxes on its appreciation in its value. The practice isn’t quite alien, and in fact, is a lot similar to that of selling stocks. But wait, it gets better.
If you purchased a Bitcoin, or some satoshis (Bitcoin’s equivalent of a cent, with 100,000,000 satoshis equal to one Bitcoin) for a mere $4,000 last year and want to pay using the same coin (only worth much, much more now) for a swanky new Tesla today, you will have to report capital gains on said transaction. If you’ve been paying attention to the BTC scorecard recently, that’s a $59,550 capital gain.
According to the experts, aka certified public accountants, the IRS will view that transaction on the fair value of the Bitcoin at the date of exchange and then compare it to the buyer’s (that’s you) tax basis, as in, the date on which the buyer acquired the Bitcoin.
In short, the amount of tax you will have to pay after buying a Tesla would depend on how long you have had the Bitcoin in your digital wallet. In simple terms, if the buyer had held on to the Bitcoin for a little over a year, then they will be required to pay a long-term capital gains tax on their profit, which is going to be determined by their gross income.
In case you were wondering, for single filers in the US, the CGT is at the rate of 0% if the individual’s earnings are upwards of $40k per annum, and up to 15% if the individual earns upwards of $440,000 per annum and 20% for those who are unfortunate enough to be reeling in an income that’s higher.
So, what if you’ve been holding on to your Bitcoin for less than a year? Then, you will be required to pay short-term capital gains rates which are at par with the normal income tax rate.
By now, you may have decided to put that Model 3 lower down your to-do list for now, but that’s no excuse not to invest in Bitcoin. This is where bitqt comes in. This is a cutting-edge trading bot that connects you to extraordinary investments on the fly in real-time.
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