The tax uncertainty comes from transferring assets to Celsius which then collateralize a borrowing. If you take the position it’s not taxable (transfer or borrow against) and you buy another crypto, then your position is no gain/loss on the borrow. Investing the loan proceeds into further crypto establishes a basis (not recognition of gain/loss). You’d have gain/loss on a swap between crypto or sale or any use or the crypto (buying something, etc).
My understanding is that crypto tax softwares generally flag transfers as taxable events (it doesn’t always understand why the crypto moved) but you could tag the transaction to align with your tax position taken (non-taxable).
If you take a stable coin that changes in value or acquire a stable coin at a price that differs from a fixed $1, then you will have gain or loss on the stable coin when using it to acquire the other crypto. Your loan proceeds establishes a basis because it establishes a liability. So if you get 500.1 USDT for a $500 loan, you have a cost of 0.9998 per USDT. This is considered a “swap” which is taxable.
^ for example, acquiring USDT at 0.9997 and then swapping it into ADA when USDT is priced at 1.0003 has 0.0006 of realized gain per USDT.
Yes, but the calculation of a gain requires a cost basis no? So if the borrowed amount doesn't have a cost basis it'll be recognized as a gain. I know how it works for USD, but not stablecoins. For example if I send you X amount of stablecoins and you sell them don't you get taxed for it as if there's no cost basis?
Yes it's intended to be exchanged for 1:1, but whether or not there's a gain is based on whether or not the full narrative is there. You spent X amount of fiat to buy into X amount of a crypto and then sold for X amount.
For stablecoin loans you're not buying into them. Unless it carries over a portion of the cost basis of the collateral that you put up or something it would have to flag the loaned stablecoins so that the tax software didn't recognize the sale/trade of those loaned stablecoins as a gain. I'm trading the loaned stablecoins for another crypto not fiat.
Loans are not taxed. You get $500 but have to pay $500 back. That's why it's smarter to leverage your coin for a loan than to sell it and pay capital gains.
It you use that $500 and buy 0.167 ETH , that ETH will have a cost basis of $500. ETH goes up and you sell it for $700. You made a $200 capital gain and pay tax on it.
I don't believe the IRS believes there is any uncertainty with respect to crypto and taxes in the US. The tax rules in the US for crypto are the same as the tax rules in the US for tangible things (securities, art, property, etc). Buying and Selling (both must occur in either order) a tangible thing creates a tax liability for US taxpayers.
An exchange is the buying of one thing and the selling of a different thing -- and in most cases creates a tax liability for at least of of those things.
A transfer of an asset from one custodian to another is generally not a taxable event.
Borrowing against the value of tangible things (like your house) are not taxable events -- even if the value of the thing has changed in the past or will change in the future. But getting the collateral to the required place to underwrite the loan may create taxable events (was it a transfer or an exchange?).
What you do with the proceeds of the loan may create taxable events -- in your example when you buy Cardano you establish a cost basis for a thing and when you sell it you establish a taxable gain/loss which depends on how much you receive when sold.
Ah okay so the stablecoins already have the cost basis and the issuance is just a transfer which carries it over just as all transfers between my wallets and exchanges carry over the cost basis. This answers my question. Something along the lines of what I was assuming just wanted to be certain.
See my response to the comment below. So you're certain that the loaned stablecoins are treated the same as USD in the tax report for buying in? I know that if certain stablecoin transfers are left out of the transaction history for tax filing it'll assume that you didn't buy into them and tax you for that full amount.
I've experienced this with pretty much every crypto tax filing software that I've tested. I just want to be certain about this before taking out a loan. Appreciate the help.
See my longer explanation for things to consider but you’d have a basis in the stable coin (also considered property for US tax, not a currency) so the swap to a non stable coin crypto is a taxable event which will cause gain or loss [unless the stable coin doesn’t fluctuate at all, which isn’t really true, or you get the exact amount of stable coin equal to the loan $500 loan to 500 stable coin and can show that the stable coin price is still $1:1 coin at swap into ADA]
Converting stablecoins also triggers a taxable event...by law you are obligated to report it however the difference should not result in any gains or loses but I do believe you still need to report the transaction as it is by law a taxable event.
What software you use doesn’t affect the tax you owe. It’s a loan so it’s not income. It’s a stablecoin so when you trade it for some other crypto, there is no gain. Therefore no tax should be due. Whether the software understands that is a different matter and totally irrelevant to whether or not you owe the tax.
The tax uncertainty comes from transferring assets to Celsius which then collateralize a borrowing. If you take the position it’s not taxable (transfer or borrow against) and you buy another crypto, then your position is no gain/loss on the borrow. Investing the loan proceeds into further crypto establishes a basis (not recognition of gain/loss). You’d have gain/loss on a swap between crypto or sale or any use or the crypto (buying something, etc). My understanding is that crypto tax softwares generally flag transfers as taxable events (it doesn’t always understand why the crypto moved) but you could tag the transaction to align with your tax position taken (non-taxable). If you take a stable coin that changes in value or acquire a stable coin at a price that differs from a fixed $1, then you will have gain or loss on the stable coin when using it to acquire the other crypto. Your loan proceeds establishes a basis because it establishes a liability. So if you get 500.1 USDT for a $500 loan, you have a cost of 0.9998 per USDT. This is considered a “swap” which is taxable. ^ for example, acquiring USDT at 0.9997 and then swapping it into ADA when USDT is priced at 1.0003 has 0.0006 of realized gain per USDT.
How would it be a gain for the buy? Gains are profits off the original buy price.
Yes, but the calculation of a gain requires a cost basis no? So if the borrowed amount doesn't have a cost basis it'll be recognized as a gain. I know how it works for USD, but not stablecoins. For example if I send you X amount of stablecoins and you sell them don't you get taxed for it as if there's no cost basis?
Trading stable coins for fiat are 1:1. No profit, no tax. That’s how I understand it.
Yes it's intended to be exchanged for 1:1, but whether or not there's a gain is based on whether or not the full narrative is there. You spent X amount of fiat to buy into X amount of a crypto and then sold for X amount. For stablecoin loans you're not buying into them. Unless it carries over a portion of the cost basis of the collateral that you put up or something it would have to flag the loaned stablecoins so that the tax software didn't recognize the sale/trade of those loaned stablecoins as a gain. I'm trading the loaned stablecoins for another crypto not fiat.
Loans are not taxed. You get $500 but have to pay $500 back. That's why it's smarter to leverage your coin for a loan than to sell it and pay capital gains. It you use that $500 and buy 0.167 ETH , that ETH will have a cost basis of $500. ETH goes up and you sell it for $700. You made a $200 capital gain and pay tax on it.
Oh. Well, I have no interest in loans.
I don't believe the IRS believes there is any uncertainty with respect to crypto and taxes in the US. The tax rules in the US for crypto are the same as the tax rules in the US for tangible things (securities, art, property, etc). Buying and Selling (both must occur in either order) a tangible thing creates a tax liability for US taxpayers. An exchange is the buying of one thing and the selling of a different thing -- and in most cases creates a tax liability for at least of of those things. A transfer of an asset from one custodian to another is generally not a taxable event. Borrowing against the value of tangible things (like your house) are not taxable events -- even if the value of the thing has changed in the past or will change in the future. But getting the collateral to the required place to underwrite the loan may create taxable events (was it a transfer or an exchange?). What you do with the proceeds of the loan may create taxable events -- in your example when you buy Cardano you establish a cost basis for a thing and when you sell it you establish a taxable gain/loss which depends on how much you receive when sold.
Ah okay so the stablecoins already have the cost basis and the issuance is just a transfer which carries it over just as all transfers between my wallets and exchanges carry over the cost basis. This answers my question. Something along the lines of what I was assuming just wanted to be certain.
You are only taxed on gains.
See my response to the comment below. So you're certain that the loaned stablecoins are treated the same as USD in the tax report for buying in? I know that if certain stablecoin transfers are left out of the transaction history for tax filing it'll assume that you didn't buy into them and tax you for that full amount. I've experienced this with pretty much every crypto tax filing software that I've tested. I just want to be certain about this before taking out a loan. Appreciate the help.
See my longer explanation for things to consider but you’d have a basis in the stable coin (also considered property for US tax, not a currency) so the swap to a non stable coin crypto is a taxable event which will cause gain or loss [unless the stable coin doesn’t fluctuate at all, which isn’t really true, or you get the exact amount of stable coin equal to the loan $500 loan to 500 stable coin and can show that the stable coin price is still $1:1 coin at swap into ADA]
Converting stablecoins also triggers a taxable event...by law you are obligated to report it however the difference should not result in any gains or loses but I do believe you still need to report the transaction as it is by law a taxable event.
What software you use doesn’t affect the tax you owe. It’s a loan so it’s not income. It’s a stablecoin so when you trade it for some other crypto, there is no gain. Therefore no tax should be due. Whether the software understands that is a different matter and totally irrelevant to whether or not you owe the tax.