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Comment by cesarb | Hacker News Reader

> The best argument in favor of the incoming administration’s proposal is simply that crypto is a different kind of asset, not money itself but like money in some ways. If you “sell” your money, say to buy a car, the government does not tax you on that transaction, claiming that you earned a “capital gain” on your money. So why should you be taxed on the capital gains if you used crypto to buy a car?

What if you paid for the car in pesos, instead of dollars, would you have a capital gains tax (honest question, I don't know how it works in the USA)? Nobody would say pesos aren't money.

(For the special case of dollars, it makes sense that there's no "capital gain" to tax: since the "capital gain" is measured in dollars, the gain or loss on your dollars is always zero.)

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Say a US citizen buys a house in the UK and takes out a £400,000 mortgage to pay for it and at the time, £400,000=$500,000 USD.

Now 3 years later, they want to refinance the £400k mortgage they owe with a different lender but the currency exchange rates have fluctuated and now £400,000=$550,000.

In the eyes of the US, they immediately owe capital gains tax on $50,000 even though nothing happened and they didn't even move out of the house.

So yes, the US charges CGT on foreign currency and equivalents.

That's not how it works.

Refinancing a mortgage doesn't trigger capital gains tax.

Capital gains tax applies when you sell an asset, like a house.

While currency fluctuations do play a role, you calculate the gain or loss at the time of sale, not when refinancing. You'd compare the USD value of your purchase price to the USD value of your selling price.

Actually, that is exactly how it works:

https://pjdtax.co.uk/updates/foreign-mortgage-gain

Seems like it would be wise for Americans living abroad to get USD-termed mortgages ("Foreign Currency Mortgage" as far as the UK lender is concerned).

Yes, you're right, gains in USD terms when refinancing a mortgage denominated in another currency are taxable.

Interestingly, such gains aren't taxable at the (usually lower) capital gains tax rate, but they're taxable at the (usually higher) regular income tax rate.

Currency arbitrage would be taxed as normal income. The more specific example being buying pesos, then reselling pesos for US dollars at a gain. There are exclusions for currency conversion below a threshold for personl expenses such as travel, per Section 988 in the US: https://www.investopedia.com/terms/s/section-988.asp

Since the only 'allowed' currency is US dollars here, any exchange to a non-US-dollar 'currency' (pesos, bitcoin, whatever) then using that to buy/sell things would implicitly trigger either a capital gains or a regular income event upon conversion to another form of value. It's no different than buying and selling art, or any goods. If I constructed all of business around bartering using rice... technically I would owe taxes on all those transactions.

I think currency gains or losses are taxed as capital gains rather than regular income, at least they are in the UK when I do my tax returns. It makes a difference as the tax rates are different.

If you read the article I linked, currency is taxed as income in the US. You can elect to treat it as capital gains but I don’t know exactly what that entails or requires.

Typically payments in the foreign currency are pegged to exchange rates, in which case you’re still paying the same amount of “value” whether in pesos or dollars.

Regardless you’d be subject to Section 988 and could potentially owe capital gains (or ordinary income) tax if you had a large enough gain from buying, holding and then exchanging the foreign currency.

The US code treats all non-USD currency as property, so you can (mostly) think of it as any other transaction with an exchange between assets. There are some nuances and exceptions of course.

>For the special case of dollars, it makes sense that there's no "capital gain" to tax: since the "capital gain" is measured in dollars, the gain or loss on your dollars is always zero.

Unless you sell your very rare, misprinted 100 dollar bill for $100k? You definitely owe tax on that payment but I have no clue which part of tax law that falls under, and I'm pretty sure I don't understand what a "capital gain" is.

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