- Basic Principles
- Fiduciaries and Cryptocurrency
- Income Tax: Cryptocurrency is Property
Cryptocurrency is a digital asset. You cannot tough it.
Bitcoin is stored in a “wallet.” The wallet is saved on a hard drive and accessed using a “private key,” which is a login and a password.
Fiduciaries and Cryptocurrency
- What a fiduciary’s role respecting cryptocurrency?
- How can a fiduciary avoid personal liability when administering cryptocurrency?
Accessing a Client’s Cryptocurrency
Fiduciaries must be able to access a bitcoin owner’s wallet in the event of a client’s disability or death. There are three problems: (1) Knowing that a person owns cryptocurrency, (2) knowing where the wallet is located, and (3) being able to access the wallet using a private key.
Income Tax: Cryptocurrency is Property
In Notice 2014-21, the IRS held that bitcoins are property, not currency. This means there will be gain or loss on the sale or transfer of bitcoins or other cryptocurrencies.
- Taxpayers must track the basis of their cryptocurrencies.
- Upon a sale or transfer of a cryptocurrency, taxpayers must report the gain or loss on their income tax return.
- A taxpayer will even recognize gain when exchanging a cryptocurrency for another asset.
- On recognized gain, Taxpayers can pay a 20% capital gains tax and 3.8% net investment tax.
To avoid a taxable event, bitcoin can be used as collateral for a loan. See Beckie Strum, Buying—and Selling—Property with Bitcoin, Mansion Global, Jan. 1, 2018.
Robert D. Kaplow, Estate Planning with Bitcoin Explained, wealthmanagement.com, Jan. 25, 2019.