Gary Zhou 
On Tuesday, Tesla announced the availability of Bitcoin as a payment option, marking yet another milestone for the company. However, though paying for electric cars with Bitcoin is a novel concept, Tesla’s cryptocurrency transactions would have tax implications.
Teslas purchased with Bitcoin, according to CNBC, can come with “big tax bills.” According to IRS Publication 544, virtual currency is classified as property for federal tax purposes in the United States. As a result, capital gains taxes will apply to Tesla cars purchased with Bitcoin. However, the amount of tax an individual will pay will vary depending on when they bought their Bitcoin.
Tesla CEO Elon Musk confirmed that the company will run Bitcoin nodes using only internal and open-source [sic] software. “Bitcoin paid to Tesla will be retained as Bitcoin, not converted to fiat currency,” Musk said on Twitter.
It’s possible that exchanging Bitcoins for a Tesla without first converting to fiat currency would make capital gains tax calculation a little more complicated. Due to the fluctuating value of Bitcoin, taxpayers may have to record profits or losses by using the cryptocurrency to buy a Tesla.
A year ago, Bitcoin was worth $6,500, and the current price of a Tesla Model 3 is about $38,000. An individual who “trades” his Bitcoin asset from last year for a Tesla Model 3 today will make a $31,500 profit. According to Bloomberg, such an individual will owe the IRS $4,750 in taxes for their Tesla Model 3 purchase.
The inverse, on the other hand, could occur. Bitcoin is currently valued at about $52,000. If an individual trades $52,000 in Bitcoin for a $38,000 Tesla Model 3, they will record a loss, which could result in a tax deduction the following year.
Tesla will charge customers the equivalent value in US dollars for its cars, despite the fact that it will not convert the Bitcoin it earns as payment to fiat currency.
“If you choose to make a payment using Bitcoin, you must pay an amount of Bitcoin that is of equivalent value to the U.S. Dollar purchase price of the product that you purchase. We will provide you with a US Dollar price for the product or service that you are purchasing, as well as a Bitcoin equivalent price (the “Bitcoin Price”),” noted Tesla under the Terms and Conditions of its Bitcoin payment option.
It goes on to say: “You must initiate the transfer of the Bitcoin Price to us within the time period that we provide to you together with the Bitcoin Price (the “Bitcoin Price Window”). If you do not initiate the transfer of the Bitcoin Price to us within the Bitcoin Price Window, the Bitcoin Price will expire, and we will provide you with a new Bitcoin Price and Bitcoin Price Window upon your request.”
To learn more about calculating the capital gains tax on your Tesla, click here, or watch the video below.
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