Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.
Yes, because you as a US person track your gains/losses relative to the USD so if you buy Pesos and the value of the Peso changes relative to the US Dollar over the time period you held them that is in fact a capital gain and reportable to the IRS for tax purposes. Every country that taxes capital gains operates the same way to the best of my knowledge.
> Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.
Increased purchasing power of the cash relative to their home currency is what's taxable, and reportable at disposition.
This is helpful. Thank you. The whole thing is a little odd to me. I'm used to thinking about paying taxes on marginal increase in value, and I had never considered that to be defined exclusively in dollars. I suppose it is. If I buy for $10 and sell for $20, I pay taxes on $10 even if the value of the dollar dropped by half in the intervening period.
Basically inflation is taxed. However, few people report trinkets. Inflation in a certain sector (whether due to speculative bubbles or not) is taxable.
The real question is — what if there is huge volatility and it goes down after it went up? Surely you don’t pay taxes on just the hands you win in a casino without deducting the losses first? But when does a casino session end with markets?
another BIG question I have is, do you really now have to pay for EVERY TRADE of one cryptocurrency to another? What if you have a capital loss and gain etc.?
If you have a capital gain on one transaction and a loss on other, in general the net gain is taxed, and usually losses in one tax period can be used to offset gains in other periods - there are all kinds of accounting rules on how to properly document the transactions and these gains. In general, everything you worry about in this post isn't new, it's been argued and resolved decades ago, you "just" have to follow all the regulations. Or, alternatively, chartered accountants make a living by following the details of these regulations so that their clients don't have to.
Wait, the gain relative to USD is only reportable when you sell the pesos (to convert them back to USD, or to CHF or BTC or whatever). Is using a currency to purchase a good a "sale"? Would you incur capital gains tax on the USD-converted value of the car you had bought using the pesos?
Yes, I believe that's what they're saying. Calculating the gain when buying a car may be doable (dollar value relative to what the pesos cost originally). The part about all this that doesn't really work is if you convert to BTC and buy pizzas and beers throughout the year, it's not really possible to keep track of the gain relative to each of those transactions. I fear that this will break things.
Your point is moot, buying and selling Bitcoin is not like buying and selling currency. The IRS classifies it like buying and selling gold, which you pay taxes on when you make a profit.
