You can buy a Tesla with bitcoin: Elon Musk

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Elon Musk, Tesla CEO, announced recently that it is now possible to buy Tesla vehicles in the U.S. with bitcoin. The automaker last month revealed that it had bought $1.5 billion worth of bitcoin and that it would soon start accepting the world’s most popular crypto currency as a form of payment.

“You can now buy a Tesla with Bitcoin,” tweeted Musk, who was officially made the “Technoking of Tesla” this month. A support page on Tesla’s website explains how customers can pay for a Tesla using the digital currency. The company’s electric vehicles typically cost between $37,990 and $124,000 before tax.

The IRS treats bitcoin and other crypto currency as property, which means that when it is disposed off, including when it’s used to purchase goods or services — it is a taxable event. How much you could owe in taxes depends on how long you’ve held the bitcoin, how much of a gain it generated and your other taxable income.

When you use bitcoin to purchase goods or services, you are in effect selling that crypto currency. And for tax purposes, the IRS treats bitcoin and its brethren as property whose sale comes with either a gain or loss depending on whether it is worth more or less than when you acquired it.

“It’s really important to know the cost basis of any crypto currency and the value when you bought it as well as the timing of that,” said Garrett Watson, a senior policy analyst at the Tax Foundation. “That’s going to determine how much is subject to tax and what tax rate you’re paying.”

Right now, one bitcoin is worth about $56,000, up from about $6,700 a year ago. If you were to use bitcoin that you’ve held for one year or less, any increase between its value when you bought it and when you use it to make a purchase is considered a short-term gain and would be taxed at ordinary income tax rates, which range from 10 per cent to 37 per cent, depending on your total income.

Beware that depending on your other income and the amount of the short-term gain, you could be pushed into a higher tax bracket. For example, if you had $40,000 in taxable income without the bitcoin transaction, the highest rate you’d pay on that would be 12 per cent. If you were to add a bitcoin gain of $10,000 to that, it would push you into the next tax bracket, which comes with a marginal rate of 22 per cent for income above $40,525.

On the other hand, if you had held the bitcoin for more than a year when you made the purchase, you’d be taxed at long-term capital gains rates, which are either 0 per cent, 15 per cent or 20 per cent, depending on which tax bracket your income falls into. One way to reduce the capital gains taxation is to use other investment losses against it.

“If you have capital losses elsewhere, it’s a way to minimize your net tax bill,” Watson said. If you have more losses than gains, you generally can use up to $3,000 a year to offset other income on your federal taxes and carry forward additional amounts to future years.

Source: CNBC