1040-NR & Virtual Currencies

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rsargant2
Posts: 2
Joined: Sun Apr 10, 2022 11:33 am

1040-NR & Virtual Currencies

Post by rsargant2 »

Hi,
Canadian resident , non U.S citizen here. Been filing a 1040-NR in U.S for a rental property for several years without any issues.

During 2021 I made some investments & trades in cryptocurrencies / virtual currencies. A few trades were completed on U.S domiciled exchanges (in which I was registered as an a non-resident / international client). In addition to trading, I lent some crypto assets to other U.S domiciled platforms that payed me "interest" in a virtual currency.

All activities were tracked correctly in Koinly which I used to generate numbers for my CRA return and paid full & proper taxes on everything .
No problem there.

As I look to completing my 1040-NR , 1040-NR now has the following question : At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?"

I feed I need to answer YES to that question but I'm not sure what activities I a) need to even report and b) are taxed by IRS.
I can't find any guidance on the matter and I doubt that any really exists.
I assume it would be limited to only activity occuring at U.S domiciled exchanges/platforms .
Some remaining questions which occur to me are:

1)Does the "treaty" relieve me of reporting capital gains & losses (and therefore IRS taxes) for virtual currency trades (made on U.S exchanges) on Schedule NEC as it would U.S stocks?

2)How should the pseudo virtual currency "interest" payments be reported on 1040-NR ?

3)Do I owe IRS tax on those (unlike say a bank $USD interest payment) ?

If I didn't have the rental property, I would not even be filing a 1040-NR so I probably wouldn't be paying any IRS tax even if I was supposed to practically speaking.
Unfortunately, I do file a 1040-NR and I don't want to get myself in to trouble by leaving anything out. Also - it doesn't really make sense to answer the virtual currency question with "YES" and then not include anything virtual currency related on the 1040-NR.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: 1040-NR & Virtual Currencies

Post by nelsona »

The treaty specifies that Cdn residents need only report US real estate and US resource gains to IRS and state.

Interest is never reported by non-residents.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: 1040-NR & Virtual Currencies

Post by nelsona »

But you should answer yes to the question.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
rsargant2
Posts: 2
Joined: Sun Apr 10, 2022 11:33 am

Re: 1040-NR & Virtual Currencies

Post by rsargant2 »

Thanks. I guess I'll just answer "Yes" then and complete the return as I normally would for the rental property with nothing specifically added for the virtual currency activity . See what happens.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: 1040-NR & Virtual Currencies

Post by ND »

FYI note that that form question means: WITHOUT USING REAL CURRENCY (i.e., CASH)
FYI e-file on 1040NR rental property return will not create until that question is answered with yes or no
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: 1040-NR & Virtual Currencies

Post by ND »

A variety of large crypto exchanges have already confirmed they report to the IRS. Back in 2016, the IRS won a John Doe summons against Coinbase. A John Doe summons compels a given exchange to share user data with the IRS so it can be used to identify and audit taxpayers, as well as prosecute those evading taxes.

Generally, the IRS treats virtual currency as property, much the same way they would regard stocks or other investments.

That means that if you bought your Ethereum and then sold it — or if you exchange it for something else, you’re logging either a capital gain or a loss. You’d be responsible for taxes related to the gain.

While cryptocurrency exchanges like Coinbase may provide you with a Form 1099-K detailing these transactions, there’s no guarantee you’ll get one.

virtual currency that you get from an employer is treated like wages: You must have federal income taxes withheld from the payment, as well as FICA tax and unemployment taxes.

cryptocurrency that you mine must be included in your taxable income. That is, you’re including the fair market value of your bitcoin as of the date of receipt.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: 1040-NR & Virtual Currencies

Post by ND »

Q5. The 2020 Form 1040 asks whether at any time during 2020, I received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. During 2020, I purchased virtual currency with real currency and had no other virtual currency transactions during the year. Must I answer yes to the Form 1040 question? (updated March 2, 2021)

A5. No. If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.
https://www.irs.gov/individuals/interna ... ansactions
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