cryptocurrency tax-law loan federal-tax-law
Capital Gains: If I loan Bitcoin to my LLC, can the LLC sell it to pay for expenses, and later repay the loan in USD tax free? (USA Law)
<p>I understand that taking a credit line against Bitcoin collateral is not capital gains event because there is no sale.</p>
<p>However,</p>
<ol>
<li>If a party, such as a company, is lent Bitcoin (BTC), sell it to pay expenses, and then pays back the loan in USD would that be a taxable event for the lender?</li>
<li>If so is there any way to avoid that-- perhaps by paying back the loan back equivalent amount of Bitcoin?</li>
<li>Is a Bitcoin denominated capital contribution ever not a taxable event?</li>
</ol>

<p>No, a loan is not taxable to the borrower and the repayment of principal is not taxable to the lender. Interest paid is a deductible expense for a business borrower and interest received is income to the lender.</p>
<p>The form of the lent property and repaid property is irrelevant; each will be valued at fair market value. (Quirks are possible if amounts borrowed and repaid don't actually match.)</p>
<ol start="3">
<li>If it's a capital contribution to a partnership, it's not taxable.</li>
</ol>

<blockquote>
<ol>
<li>If a party, such as a company, is lent Bitcoin (BTC), sell it to pay expenses, and then pays back the loan in USD would that be a
taxable event for the lender?</li>
</ol>
</blockquote>
<p>Yes.</p>
<blockquote>
<ol start="2">
<li>If so is there any way to avoid that-- perhaps by paying back the loan back equivalent amount of Bitcoin?</li>
</ol>
</blockquote>
<p>No.</p>
<blockquote>
<ol start="3">
<li>Is a Bitcoin denominated capital contribution ever not a taxable event?</li>
</ol>
</blockquote>
<p>A capital contribution (i.e. a transfer of property, in kind, to a company in exchange for equity in the company) of Bitcoin is usually not a taxable event until the Bitcoin is sold.</p>
<p>The sale is income to the company, although most closely held companies have pass through taxation, so it is taxed to the owners of the company on a pass through basis.</p>
<p>In a C-corporation, however, the conversion of Bitcoin to anything else would be a taxable sale of the C-corporation to which the Bitcoin was contributed upon which corporate entity level income taxes would be due.</p>
<p>In general, the answer for Bitcoin is generally going to be the same as the answer would be for pork bellies or bushels of wheat or barrels of oil.</p>
