The US tax authority Internal Revenue Service’s (IRS) on 25th March 2014, ruled that Bitcoin would be taxed as per property and not as currency.
Bitcoins will be taxed like stocks or real estate, rather than as a basic currency such as a dollar.
The IRS also said that virtual currency is not to be treated as legal-tender currency to determine if a transaction causes a foreign currency gain or loss under the US tax law.
IRS even stated that, the character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
As property, the gains made on Bitcoin and other virtual currencies sold after being held for than a year would face tax of 15 to 20%, depending upon person’s level of income. But any gains on Bitcoins traded in less than one year will be treated as income, which can be taxed at significantly at higher rate.
IRS also made clear that anyone paid for services in Bitcoin or other virtual currencies have to report it as income. While reporting, the tax payer would have to value Bitcoin in dollars based on the “fair market value”, possibly using the rate on an exchange.