Bitcoin (BTC) now accepted as payment for Tesla cars but buyers need to consider the tax implications
Buyers who plan to use Bitcoin to purchase a Tesla car need to compute the capital gains taxes for the transaction.
Sat, 27 Mar 2021, 12:30 pm UTC
Crypto adoption is accelerating at a rapid pace since the coronavirus pandemic started as more companies also started accepting digital currencies as a payment option. The latest to join the trend is Elon Musk’s Tesla, which recently confirmed that now accepts Bitcoin (BTC) as payment for its vehicles in the U.S.
Elon Musk confirmed that the Palo Alto, California-based electric car manufacturer is now accepting the world’s largest crypto as payment for its vehicles. “You can now buy a Tesla with Bitcoin,” Musk tweeted on Wednesday.
As the world’s leading electric car manufacturer, Tesla’s acceptance of Bitcoin as a payment option is deemed a major development in the crypto industry, according to CNBC. BTC holders, who have watched the crypto rally in recent months, are definitely excited that they can now use their digital assets to buy one of the most innovative cars today.
Musk’s confirmation came a month after Tesla hinted that it plans to accept BTC as a payment option. “Moreover, we expect to begin accepting bitcoin as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt,” the company said in its latest Form 10-K filing with the SEC.
In the filing, the carmaker also revealed that it has invested $1.5 billion in Bitcoin, which is the second-largest BTC portfolio among publicly-listed firms, as part of its new investment policy aimed at maximizing returns. “We invested an aggregate $1.50 billion in bitcoin under this policy and may acquire and hold digital assets from time to time or long-term,” Tesla said.
However, Bitcoin holders need to carefully weigh the pros and cons of using the crypto to purchase a Tesla car due to major tax implications for buyers especially for those who invested in the asset early. “In fact, buying a new Tesla using bitcoin may end up being far more expensive than buying one with cash,” CNBC wrote.
From the Internal Revenue Service’s (IRS) point of view, using Bitcoin for payments is not that different to selling it, which makes purchases using BTC subject to capital gains taxes. Since IRS classifies cryptos as property, holders will have to pay taxes on its appreciation in value, whether they sold the crypto or exchange it for a product.
For instance, those who bought Bitcoin at $3,000 and use BTC to buy a Tesla car when the crypto was priced at $50,000 will have to pay capital gains taxes on its price increase. “What you’ve got there is a $47,000 capital gain,” Ryan Losi, a certified public accountant (CPA) with Piascik, explained. “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.”
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