What are Stablecoins?

Stablecoins were developed to tether the price of certain cryptocurrencies to the value of a fiat currency, such as the dollar. Some traders have used a strategy of purchasing stablecoins and then using them to "purchase", or trade for, other cryptocurrencies. They are often surprised when they see a capital gain or loss incurred when these coins are traded for other coins or sold based on their price when purchased/sold.

Even though stablecoins often equal the value of the U.S. dollar, they are treated as property by the IRS because they are cryptocurrency assets. That means that sales or exchanges of stablecoins must be reported on your crypto taxes — even if you had no gain or loss

Even if the stablecoin has a 1 to 1 exchange ratio with the U.S. Dollar, it is not the same as cash. For tax purposes, the IRS treats all cryptocurrencies as property subject to capital gains tax.

While buying stablecoins for cash and holding them is a non-taxable event.

  • Paying for goods and services

  • Receiving stablecoin in exchange for goods and services

  • Converting other cryptocurrencies into stablecoin and vice-versa are taxable events

Paying for goods and services in stablecoin

because the IRS treats it like a sale or exchange of an asset, which is subject to capital gains tax. Technically, if the stablecoin is pegged to the dollar at a 1 to 1 ratio, the capital gain is zero and there is no tax owed. But the transaction must still be recorded and reported, just like if you were buying and selling a stock at zero net gain/loss. Otherwise, you risk attracting an IRS audit to determine whether you underreported taxable income.

Receiving stablecoin in exchange for goods and services is a taxable event.

It is the same principle as receiving payment in fiat currency, which is income subject to tax. The fair market value of the cryptocurrency as of the date of receipt determines its value for income reporting purposes.

With stablecoin, it is easy to calculate because of the 1 to 1 ratio. Receiving 100 USDT is the equivalent of receiving $100 cash.

Although, spending the 100 USDT is not the same as spending $100 cash – rather, the transaction is considered a liquidation of property (and as such is subject to capital gains). Again, if the value of the stablecoin is pegged to the dollar, you are not going to have capital gains. But the transaction must be reported.

Converting other cryptocurrencies into stablecoin and vice-versa is also a taxable event.

Using a stablecoin to purchase other cryptocurrencies is a sale of the stablecoin that must be reported, even if the capital gain is $0.

Key Takeaway’s

Stablecoins such as TUSD, USDC, and USDT are still considered to be cryptocurrency, and as such, any coin-to-coin trade or sale of these coins would be considered a capital gain/loss.

When you import all your exchanges and wallets, these will automatically populate for you and calculate with the rest of your cryptocurrency transactions for your reports.

A handy guide for stablecoins and fiat, for tax purposes

Buying stablecoins with fiat is NOT TAXABLE. EX: USD to TUSD is NOT TAXABLE.

Selling stablecoins into fiat is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDC to USD is a taxable transaction based on the difference between the value of the USDC when purchased and the value when it was sold.

Trading a stablecoin for a cryptocurrency is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDT to BTC is a taxable transaction based on the difference between the USDT value when purchased and the value when traded.

Trading another cryptocurrency for a stablecoin is also a TAXABLE transaction, with capital gains realized on the incoming coin. EX: BTC to USDT would have a taxable event on the value of the BTC when acquired and the value when sold.

  • What are Stablecoins?

Stablecoins were developed to tether the price of certain cryptocurrencies to the value of a fiat currency, such as the dollar. Some traders have used a strategy of purchasing stablecoins and then using them to "purchase", or trade for, other cryptocurrencies. They are often surprised when they see a capital gain or loss incurred when these coins are traded for other coins or sold based on their price when purchased/sold.

Even though stablecoins often equal the value of the U.S. dollar, they are treated as property by the IRS because they are cryptocurrency assets. That means that sales or exchanges of stablecoins must be reported on your crypto taxes — even if you had no gain or loss

Even if the stablecoin has a 1 to 1 exchange ratio with the U.S. Dollar, it is not the same as cash. For tax purposes, the IRS treats all cryptocurrencies as property subject to capital gains tax.

While buying stablecoins for cash and holding them is a non-taxable event.

  • Paying for goods and services

  • Receiving stablecoin in exchange for goods and services

  • Converting other cryptocurrencies into stablecoin and vice-versa are taxable events

Paying for goods and services in stablecoin

because the IRS treats it like a sale or exchange of an asset, which is subject to capital gains tax. Technically, if the stablecoin is pegged to the dollar at a 1 to 1 ratio, the capital gain is zero and there is no tax owed. But the transaction must still be recorded and reported, just like if you were buying and selling a stock at zero net gain/loss. Otherwise, you risk attracting an IRS audit to determine whether you underreported taxable income.

Receiving stablecoin in exchange for goods and services is a taxable event.

It is the same principle as receiving payment in fiat currency, which is income subject to tax. The fair market value of the cryptocurrency as of the date of receipt determines its value for income reporting purposes.

With stablecoin, it is easy to calculate because of the 1 to 1 ratio. Receiving 100 USDT is the equivalent of receiving $100 cash.

Although, spending the 100 USDT is not the same as spending $100 cash – rather, the transaction is considered a liquidation of property (and as such is subject to capital gains). Again, if the value of the stablecoin is pegged to the dollar, you are not going to have capital gains. But the transaction must be reported.

Converting other cryptocurrencies into stablecoin and vice-versa is also a taxable event.

Using a stablecoin to purchase other cryptocurrencies is a sale of the stablecoin that must be reported, even if the capital gain is $0.

Key Takeaway’s

Stablecoins such as TUSD, USDC, and USDT are still considered to be cryptocurrency, and as such, any coin-to-coin trade or sale of these coins would be considered a capital gain/loss.

When you import all your exchanges and wallets, these will automatically populate for you and calculate with the rest of your cryptocurrency transactions for your reports.

A handy guide for stablecoins and fiat, for tax purposes

Buying stablecoins with fiat is NOT TAXABLE. EX: USD to TUSD is NOT TAXABLE.

Selling stablecoins into fiat is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDC to USD is a taxable transaction based on the difference between the value of the USDC when purchased and the value when it was sold.

Trading a stablecoin for a cryptocurrency is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDT to BTC is a taxable transaction based on the difference between the USDT value when purchased and the value when traded.

Trading another cryptocurrency for a stablecoin is also a TAXABLE transaction, with capital gains realized on the incoming coin. EX: BTC to USDT would have a taxable event on the value of the BTC when acquired and the value when sold.

A handy guide for stablecoins and fiat, for tax purposes

  1. Buying stablecoins with fiat is NOT TAXABLE. EX: USD to TUSD is NOT TAXABLE.

  2. Selling stablecoins into fiat is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDC to USD is a taxable transaction based on the difference between the value of the USDC when purchased and the value when it was sold.

  3. Trading a stablecoin for a cryptocurrency is a TAXABLE transaction (capital loss or gain) and would appear on the 8949. EX: USDT to BTC is a taxable transaction based on the difference between the USDT value when purchased and the value when traded.

  • Trading another cryptocurrency for a stablecoin is also a TAXABLE transaction, with capital gains realized on the incoming coin. EX: BTC to USDT would have a taxable event on the value of the BTC when acquired and the value when sold.

This information is for informational purposes only and not for the purpose of providing financial, legal, investment, accounting, or tax advice. You should contact your CPA or other qualified tax professional to obtain advice regarding your particular issue or problem.

Did this answer your question?