Crypto traders who aren’t US residents or residents won’t have to worry about their crypto being taxed in the United States.
While some forms of crypto are likely to be exempt from US taxation, certain types of cryptocurrencies and decentralised finance products owned by non-US citizens may be subject to federal property or reward taxes. Please note that this text does not cover the applicable US state property taxes.
Actual property and tangible private property, such as art, that is located in the United States, as well as shares of stock in US firms, are all considered US situs property.
It also includes debt obligations with a US individual as the first obligor unless the debt is portfolio debt or a debt obligation that meets certain requirements to generate tax-free interest; and intangible private property with written proof that isn’t treated as the property itself, whether issued by or enforceable against a US resident or company. The Treasury Laws do not give a clear description of what constitutes this type of property.
The reward of US situs property, which includes tangible private property, might be subject to US reward tax for a non-US citizen.
That’s because if they flip the property without first checking the tax owed is paid, that establishment could be held liable for any taxes payable.
Although obtaining a switch certificate has traditionally been a top priority when dealing with banks and other financial institutions, cryptocurrency exchange or custodian may require one to show that no property tax is due if crypto is transferred from a deceased person’s account.
In light of the aforementioned tax guidelines, which appear to be focused on tangible property and inventory of US businesses, cryptocurrencies, NFTs, and comparable digital assets may not appear to be assets that will be subject to US property or reward tax when owned by a non-US individual. Because cryptocurrency appears to be essentially intangible, it is widely assumed that it is not subject to US taxation.
Nonetheless, how a crypto wallet is stored and how ownership of the crypto is transferred may have an impact on whether or not it is taxed in the United States.
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A person could transfer bitcoin from, say, a Coinbase account to the recipient’s account to transfer a digital foreign currency like bitcoin.
Because there is no such thing as a transfer of tangible property, it does not appear to be subject to US taxation.
Consider the instance of a person transferring pocket possession. What happens if the private keys are kept in a cold pocket, such as a USB flash drive or a piece of paper?
Then, while physically present in the United States, that flash drive or piece of paper is given to a friend—will this trigger a US reward tax? It is really interesting to see what happens next.