Are Cryptocurrency (Bitcoin) Transactions Always Short-Term?

One of my clients sent me a link to a tweet (on Twitter) from Peter Brandt:

Mr. Brandt is apparently an accomplished author and writes a trading newsletter. I strongly suggest to him he stick to that, and avoid giving tax advice (perhaps excluding, “You should consult your own tax advisor”) because he’s wrong.

Whether a capital transaction is long-term or short-term is determined strictly by the holding period. This is noted in the Tax Code, 26 U.S.C. § 1222. Here are the first four paragraphs of 26 U.S.C. § 1222:

For purposes of this subtitle—
(1) Short-term capital gain
The term “short-term capital gain” means gain from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent such gain is taken into account in computing gross income.

(2) Short-term capital loss
The term “short-term capital loss” means loss from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent that such loss is taken into account in computing taxable income.

(3) Long-term capital gain
The term “long-term capital gain” means gain from the sale or exchange of a capital asset held for more than 1 year, if and to the extent such gain is taken into account in computing gross income.

(4) Long-term capital loss
The term “long-term capital loss” means loss from the sale or exchange of a capital asset held for more than 1 year, if and to the extent that such loss is taken into account in computing taxable income.

This is law; the IRS cannot make an exception that all cryptocurrency transactions are short-term. Whether any capital transaction is long-term or short-term is determined strictly by the holding time. It doesn’t matter if it’s a stock, bond, real estate, cryptocurrency, or any other type of property.

Thus, whether a sale of cryptocurrency is long-term or short-term is determined solely by the holding time. If you hold Bitcoin for more than one year (the sale date is at least a year and a day after the date of purchase) the transaction will be long-term.

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