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My friend owns roughly $1M USD worth of Bitcoin. These coins are sitting on a (backed up and encrypted) hard drive in Brasil. He bought these coins legitimately, and has the paper trail to prove it.

He recently moved to the US, and now wants to get his coins and liquidate them.

I've been doing research on this topic, and I am unsure what kinda of taxes he will have to pay on these coins.

I've seen articles talking about capital gains tax from buying / selling coin, but he is not trading them in the US.

My thoughts lead me to think that this would be similar to him bringing over a ton of gold or other assets, and selling them off here, which makes me think of paying a sales tax.

As Bitcoin is still a newer development in the tax world, I am struggling to find any documentation on steps for this, so any feedback / options would be great.

Chris W. Rea
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Steven Smith
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    You say he is not trading them in the US. Where is he selling them? – ChrisInEdmonton Jul 05 '17 at 20:42
  • He will be selling them in the US, yes, but by trading I meant actively trading on a market, which invokes capitol gains on the earnings. Since he bought the property in Brasil, I am unsure if the same rules apply – Steven Smith Jul 05 '17 at 20:48
  • If I was transacting a seven digit amount of bitcoins, I would declare some reasonable amount of capital gain and pay the taxes. I would then wait for the IRS to come audit me if it deemed that to not be reasonable. I certainly would not be too aggressive with it. At this point, I doubt any infallible guidance or safe harbor exists. – quid Jul 05 '17 at 21:53
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    If I were transacting a seven digit amount of anything, I would get advice from an accountant and/or lawyer, not the internet. – Scott Jul 07 '17 at 03:13
  • Can he prove he has held the BTC more than one year? It's very important. – Harper - Reinstate Monica Jul 07 '17 at 03:58

2 Answers2

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In most countries, you are deemed to dispose of all your assets at the fair value at that time, at the moment you are considered no longer a resident. ie: on the day your friend leaves Brazil, Brazil will likely consider him to have sold his BTC for $1M.

The Brazilian government will then likely want him to calculate how much it cost him to mine/buy it, so that they can tax him on the gain. No argument about how BTC isn't "Fiat money" matters here; tax laws will typically apply to all investments in a way similar to stocks etc..

The US will likely be very suspicious of such a large amount of money without some level of traceability including that he paid taxes on any relevant gains in other countries. By showing the US that he paid appropriate 'expatriate taxes' in Brazil (if they exist; I am speaking generally and have no knowledge of Brazilian taxes), he is helping to prove that he does not need to pay any taxes on that money in the US. Typically the BTC then is valued for US tax purposes as the $1M it was worth when he entered the US becoming a resident there [This may require tax planning prior to entering the US] [see additional answer here: https://money.stackexchange.com/a/48031/44232].

Any attempt to bring the BTC into the US without paying appropriate Brazilian / US taxes [as applicable, I'm not 100% on either; check with a tax lawyer knowledgeable on both US & Brazilian tax law, because the amount of money is material] will likely be considered fraud. 'How to commit fraud' is not entertained as valid subject matter on this site.

Grade 'Eh' Bacon
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    How does that work if you have real estate in more than one country? It would be obvious that it hasn't been disposed of nor exported if you chose to keep a house in country A while moving to country B. – CactusCake Jul 05 '17 at 21:29
  • @CactusCake Real estate is generally more complicated; for "non-real property" [basically what Canada calls non-real estate; things like stocks, bonds, etc.], you are typically deemed to hold that in your country of residence, for capital gains purposes. For 'real property', you are typically deemed to hold that in the country it exists in. Though that doesn't mean your country of residence also won't want a slice of the capital gains pie [whether it gets any will depend on the tax treaty between countries]. – Grade 'Eh' Bacon Jul 05 '17 at 21:32
  • And "hasn't been disposed of" is irrelevant to tax; the point is that they don't want you running away to the Bahamas without paying tax. – Grade 'Eh' Bacon Jul 05 '17 at 21:32
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    What happens if Brasil has no laws on btc taxation? – Andrew Diamond Jul 05 '17 at 21:42
  • So I take it BTC is considered non-real then, like stocks. Even that seems odd to me. I would have thought stocks would be considered to be present in the country that the company they represent (or the exchange) is located. – CactusCake Jul 05 '17 at 21:44
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    I think this answer will need to have some sources to back it up. It seems odd that'd you'd be taxed on stocks when moving from country to country even though they are yours the entire time when typically stocks aren't taxed until you actually do sell them. – Andy Jul 05 '17 at 21:58
  • @AndrewDiamond Then his tax basis for us capital gains purposes will be the amount he paid for the bitcoins. He will owe capital gains on the difference. (Though he should definitely talk to a tax professional to see if there's some way he can step up his basis. There sometimes are ways.) – David Schwartz Jul 05 '17 at 22:01
  • @Andy I didn't add sources, because I am not 100% confident of the answer. A good answer for this amount of money will need to come from a tax accountant / lawyer, who is well-versed in the international tax treaties between the US & Brasil. I am speaking on a general basis [what I say is generally true, for example between the US & Canada, in either direction of immigration]. – Grade 'Eh' Bacon Jul 05 '17 at 22:07
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    @AndrewDiamond Tax law doesn't work like that. Generally there are broad categorizations of assets, not specific listings of every possible thing. ie: if someone bought a gold-plated Fidget Spinner and sold it a year later for twice the price, the IRS isn't going to say "Damn, we didn't write Fidget Spinners into the tax code yet! We can't charge you capital gains tax!" – Grade 'Eh' Bacon Jul 05 '17 at 22:08
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    @CactusCake This is why it's important to get actual tax advice from a professional who puts their liability on the line to give a response [note: I have specifically NOT done this, hence the caveats over my lack of surety - this will come from a paid professional only]. In essence: Tax laws are specific pieces of legislation, and very, very frequently do not match what a layman would 'expect' to be the case. – Grade 'Eh' Bacon Jul 05 '17 at 22:09
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    I guess you are trying to say this is similar to other assets. Someone buys a Solitaire diamond [or an painting] 10 years ago. Carries it to US and now wants to sell it. For the sum involved, it does make sense to get professional advise. – Dheer Jul 06 '17 at 12:27
  • Why would the US care about Brazilian tax laws? That's between OP and Brazil, the IRS is not in the business of enforcing foreign tax rules. – JonathanReez Mar 24 '21 at 20:50
  • @JonathanReez I imply (but don't outright state) that the IRS would see valuation used in a Brazilian tax return as being proof of the valuation on the date of impatriation to the US. Without that proof, there may be implication that the cost basis for US tax purposes would be lower - perhaps original mining cost. As to why one gov't would care about another's tax system - those countries with normalized tax communication and tax treaties will often rely on eachother's tax determinations as kind of like 1st-level evidence that something is accurate. – Grade 'Eh' Bacon Mar 25 '21 at 16:34
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This question is about PROPERTY acquired before becoming a resident of the US.

If you bought property before you were a resident, and sold it after you were a resident, then you pay capital gains tax on the whole thing. Just see if it qualifies for long term capital gains tax treatment, because it is a substantially lower tax rate. You either have a tax event or you don't, and there's nothing wrong with an audit to prove that, so don't worry too much about it (unless you have a legitimate reason to be worried). Simply having what YOU perceive as a lot of money, doesn't make the possible lack of taxes more or less serious.

If he has things that have declined in value, he can sell them at a loss this year and buy identical assets immediately. This is called tax harvesting and creates a loss that can offset capital gains tax.

CQM
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  • @Grade'Eh'Bacon didn't want to put links in the main answer, but here is a source https://hodgen.com/property-you-acquired-before-coming-to-the-usa/ there are some circumstances where you're right, some where exit tax matters, some where I'm right – CQM Jul 06 '17 at 16:48