IRS declares that bitcoin will be taxed as property

The Internal Revenue Service has cleared up a pressing tax question over virtual currencies, just in time for the looming filing date on April. In a notice issued on Tuesday, and reported by the Wall Street Journal, the agency clarified that bitcoin and other online money will be taxed as property, not currency.

The distinction is important because bitcoin’s 100-fold price increase last year minted many new millionaires, but no one was sure how to report the gains.

As I explained yesterday, currency profits are taxed at a 60/40 rate that blends long-term and short-term capital-gains rates. However, if bitcoin was considered a capital asset, it would be taxed at the long-term capital-gains rate.