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Taxation of Crypto Margin Trading

Taxes on Margin Trading

In general, any financial derivative (futures, swaps, and forwards) that do not trade on exchanges or boards of trade which are not located in the United States do not meet Section 1256 contracts. The financial result of these transactions would be subject to the capital gains regime.

Section 1256 contracts are those that 1) with respect to the amount required to be deposited and withdrawn depends on a system of marking to market and 2) are traded on or are subject to the rules of a qualified board or exchange as defined in IRC Sec. 1256(g)(7). The taxation of the financial result of these contacts are treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss.

As Margin Trading of Bitcoin and other cryptocurrencies will generally not meet the requirements of the Section 1256 contracts, they will be subject to Capital Gains.

 

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