The IRS treats cryptocurrency as property. This means when your Bitcoin or other digital asset is used to make a purchase, you have to figure gain or loss on the transaction. You can’t duck this responsibility because you are required to note on the first page of the tax return whether you received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency during the year. A new bipartisan bill, called the Virtual Currency Tax Fairness Act of 2022 (H.R. 6582), would exempt from reporting any transactions under $200. For example, if you use virtual currency to buy your morning coffee, you won’t have to report this as a taxable sale. If enacted, it would apply to transactions after December 31, 2021.
The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income.