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Lesson in Course: Crypto (advanced, 2min )
Stablecoin prices hardly move. Are they taxed?
The IRS currently categorizes stablecoins as property which means that any capital gains for stablecoins are taxed. If stablecoins pegged to fiat currency always represent the underlying currency, how can there be taxes?
Although stablecoins are designed to maintain steady prices, perfect tracking is not often possible. Even multi-billion dollar ETFs can momentarily deviate from the underlying value they are intended to represent.
For example, let's say we bought 1,000 USDC at $1.00 each; we have a cost basis of $1000 for USDC. Then we decide to sell our USDC to buy another coin, like Bitcoin. When we sold the 1,000 USDC, let's say the value of 1 USDC was $1.02. This trade would result in $2 of capital gains under current tax rules.
Stablecoins should rarely deviate enough to cause significant tax concerns.
Investing in any crypto can generate taxes for us, stablecoins included. The limited price changes of stablecoins does not allow for big returns, but they'll limit the potential taxes owed. They provide beginners a great way to learn how to buy crypto, own crypto in a wallet, and sell crypto before moving on to coins that can create much larger tax consequences.