Plan B Passport: Americans looking for a tax break on bitcoin profits

In the United States, the IRS treats virtual currency, which includes bitcoin, as well as other cryptocurrencies, as property. This means bitcoin is taxed in a manner similar to stocks or real property.

“At a basic level, the taxpayer’s basis in the bitcoin is what the taxpayer purchased it for, and when the taxpayer sells or exchanges that bitcoin, it is a taxable transaction,” explained¬†Jon Feldhammer, a partner at law firm Baker Botts and a former IRS senior litigator.

“The taxpayer’s income or loss is determined by taking the sales price and subtracting the taxpayer’s basis,” he said.

So let’s say the taxpayer purchases one bitcoin for $10,000 and sells it for $50,000. This individual would face $40,000 of taxable capital gains. A second passport doesn’t automatically solve their tax problems.

“If a taxpayer has a green card, is a U.S. citizen, or is a U.S. resident alien, the taxpayer owes U.S. tax on any crypto gains they have no matter where the crypto or the taxpayer is located,”¬†explained Feldhammer. “It also doesn’t matter if they are dual citizens; if they are U.S. citizens, they owe U.S. tax on their worldwide income.”

This is why Ananina says that many of her American clients either plan to renounce their U.S. citizenship or are considering this option for later in life.

One Plan B Passport customer, who spoke to CNBC on the condition of anonymity, said he has spent the last decade traversing southeast and central Asia, and he is seriously considering ditching his U.S. passport once he’s officially a citizen of Saint Kitts. He said the $180,000 cost was totally worth it, as it represents only 1% of his net worth, and the capital gains taxes on his crypto holdings would amount to millions.

This person opted for the “premier” Caribbean passport, as he describes it, since it is the oldest and most reputable of the programs and offers the most visa-free travel.

But he warns those who are interested in applying to brace themselves for a months-long process with a lot of paperwork, including police checks and medical checks.

Would be emigrants should also note that the U.S. charges citizens a fee to cut loose.

“When a U.S. taxpayer expatriates, they are generally subject to the ‘exit tax,’ which is essentially a tax equal to what the taxpayer would be subject to if they sold all of their property the day before they gave up their citizenship,” according to Feldhammer.

This content was originally published here.

Leave a Reply