An equity security is an ownership interest in a corporation, partnership, or trust. A debt instrument represents the right of a person who has advanced funds to another to be repaid those funds at some point in the future. A crypto asset typically is neither of these things and can involve different economic features or uses. The label “crypto asset” or “cryptocurrency” is NOT determinative of its tax treatment, as the tax law looks to the substance of what a transaction and/or asset is to determine its tax treatment.

In addition, there are instances in which the tax law provides for a specific rule that applies to equity and debt securities, which may not apply to a virtual currency. See the IRS FAQ here. You should consult your own professional advisors before making any tax, legal, or accounting decisions.

NOTE: Lukka does not provide tax advice. The statements above are general in nature and do not address how the application of the tax rules can vary based on a taxpayer’s actual facts. Please consult a tax professional on how the tax rules apply to your specific facts.

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