In many of our previous articles here, on BTCWIRES, we have discussed the various legal issues surrounding Bitcoin and other cryptocurrencies. As cryptocurrency trading itself is not a very easy job, we thought you should have some more help as far as navigating the murky waters of crypto legality was concerned. Therefore, today, we will answer for you a very common concern for many crypto users: is cryptocurrency a foreign asset?
You May Also Read: Are Cryptocurrencies Subject To Capital Gains Tax?
Before we move on and dissect the problem at hand, it would do you well to remember that our discussion on this particular issue deals specifically with the rules existing in the United States of America and not any other country.
It is true that most countries follow a similar model as far as classifying cryptocurrencies as a foreign asset is concerned, but it is absolutely imperative that you find out information specific the the country you are a resident or citizen of, just to be sure that you do not find yourself on the wrong side of the law.
You May Also Read: Does The Wash Sale Rule Apply To Bitcoin?
Classification of Crypto As Foreign Asset
Although cryptocurrencies are technically designed to be “currency”, most governments and financial authorities around the globe usually do not consider it to be so.
On the contrary, crypto is usually seen as a form of an asset, just like you would see a form of property: moveable or immovable.
Since crypto is often used more commonly for trading than actual transactions, tax authorities tend to see them as being income-generating assets similar to real estate or gold. The Internal Revenue Service (IRS) of the United States also sees crypto in that manner and hence applies the capital gains tax on cryptocurrencies.
In the US, the whole issue is governed by a law called the FATCA or Foreign Account Tax Compliance Act. Originally passed to eliminate incidences of offshore tax evasions and frauds, the FATCA applies to crypto sometimes, when it is being viewed as a foreign asset.
Now, ordinarily, if you are a common US citizen residing within the country and storing, buying, selling and using crypto within the borders of the country, FATCA would not apply to your tax filing.
However, if you have been holding your crypto in an offshore wallet and using, buying or selling at a location outside the US, then FATCA comes into force and your crypto becomes foreign asset. The FBAR legislation, concerning one’s Foreign Bank Account Report, might also apply.
Therefore, your crypto asset is only foreign if you have been using it or storing it anyhow on foreign soil.
Here Are A Few Other Articles For You To Read Next: