Capital Gains Tax

Can someone give me insight into capital gains?

I bought cryptocurrency and the value has increased significantly. I want to know if I cash in what I originally paid and nothing more, do I need to pay capital gains? My plan would be to let the rest sit and see what happens. I know that when I cash in the rest I would be subject to capital gains, but what about the value of the original purchase? Thanks.

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You’d still be subject to capital gains. You pay gains per unit. So in the case of cryptocurrencies, if you bought 100 bitcoins at $100, and sold 1 at $10,000, you’d just be covering your initial investment. But you’d owe capital gains tax on the $9,900 of gains on that 1 coin. There’s no way to sell them such that you won’t be subject to capital gains.

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You might be able to do specific lot identification, if you bought some more recently at higher prices and sell those with smaller gains rather than the earlier purchases. You can do this with stocks if you go out of your way to tell your broker to do it in advance of the sale, but I don’t know about coins.

Interesting point. Should be comparable to gold coins. Can you specify lots if you buy multiple gold coins of the same weight at various times? Probably.

Thanks for the answers. They are helptufl. I purchased at different times/prices, but the lot with the highest purchase price and lowest increase is at a 58% gain, but the current value only covers 30% of my initial purchase price. I think I will leave it where it is to take advantage of the long-term capital gains rate. I would like to recoup my initial “investment,” but my original thinking was that I can lose it all and it won’t hurt, so I will stay with my original plan.

Here is a (perhaps dumb) question:

How would the IRS know you made this money, unless it’s a significant amount and shows up in other taxable investments in the future?

They are going after the bigger crypto exchanges for records of everyone who traded more than a little.

  1. As xerty mentioned, the IRS is getting the records, and 2) I ran into tax issues in the past with the state due to a sales/use tax arrangement I had with a contractor, which eventually led to me losing out on a government job. I prefer to keep my dealings with the government above board.

Whether or not the IRS knows about income has nothing to do with whether you owe tax on it.


Another (perhaps dumb) question:

Coinbase only requires an E-mail and phone number. How would the IRS catch you with such rudimentary information (which is often not traceable to a particular individual)?

I’m not trying to skirt the law, and in fact I’m totally against bitcoin speculation for this reason (and for others), but my impression is that everyone ELSE is using bitcoin as a way to avoid governmental access to their currency transactions.

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That may have been true in the past, or maybe you can open an account with that basic info, but you cannot buy anything without providing your name, address, dob, e-mail, banking information, last 4 of SSN, and I believe government issued photo ID and utility bill.


Gold is one area where you can buy and sell without being tracked, by doing so at your local dealer, but anything with electronic funds transfer is tracked for the Patriot Act regulations. Even so they may choose to keep a copy of your identification in case they are unknowingly accepting stolen goods.