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Acquiring Tesla cars with BTC by residents of the United States may not be as fun-filled as it can be for Bitcoin holders that reside in other nations per the tax considerations.
Elon Musk, the Chief Executive Officer of electric vehicle company Tesla Inc (NASDAQ: TSLA), broke the internet yesterday when he revealed the firm has integrated payment gateways that will allow acquiring a Tesla car with Bitcoin (BTC) possible. The news was not just welcomed with open arms, it has been reiterated as one of the major milestones for the world’s largest cryptocurrency by market cap in its journey to mainstream adoption.
The position of Tesla in the auto industry is pivotal as the company is currently the most valuable car manufacturing brand in the world, and its first purchase of $1.5 billion worth of cryptocurrency has also placed it at the top of the charts amongst publicly listed entities with a Bitcoin holding. The complementary influence of Tesla is further capped by the role of Elon Musk in the cryptocurrency ecosystem as we have it today. The iconic CEO is a known crypto publicist with Dogecoin (DOGE), a Shiba Inu-themed coin, and Bitcoin being his favorite.
Coupling all these factors, the news about the Bitcoin acceptance for Tesla cars has gone viral, with some social media users already showing their ordered EVs through payments made via the digital currency.
Acquiring a Tesla Car and the IRS Tax Consideration
Acquiring Tesla cars with BTC by residents of the United States may not be as fun-filled as it can be for Bitcoin holders that reside in other nations per the tax considerations. A CNBC report highlights the possibility of paying up to a 20% tax if one makes such purchases.
To the Internal Revenue Service (IRS), Bitcoin is classified as property just the way any real estate is, and selling such may attract capital gains tax. For single filers, the capital gains tax rate is 0% if you earn up to $40,000 per year, 15% if you make up to $441,450, and 20% if you make above that. Holding Bitcoin for more than a year will attract the capital gains tax while those who have held the coin they plan on purchasing the Tesla cars with for less than a year will be subjected to the normal income tax rate.
As Bitcoin has grown so much in value in the past year, a Bitcoin that was purchased at $3,000 last year March while the market experienced a crash and is now worth $50,000 will be subjected to a Capital gains tax on the $47,000 excess.
“What you’ve got there is a $47,000 capital gain,” Ryan Losi, a certified public accountant (CPA) with Piascik, tells CNBC Make It following the analogy. “The IRS is going to look at what the fair value of the coin is at the date of exchange and compare that to your tax basis, which is the date at which the bitcoin was acquired.”
As every citizen is obligated to report the capital gains on their transactions, buying Tesla cars with Bitcoin will be a decision that requires more than the hype which surrounds the news when it broke.