we are trading Bitcoin and other “convertible” digital currencies on an exchange such a Poloniex or Bitrex. With the guidance issued under IR-2014-36, the IRS has effectively classified the exchange of “convertible” virtual currencies as a trade of one property for another property. This exchange would be viewed as a barter of one fairly valued property for another fairly valued property and would be subject to barter rules.

As a general rule, any time property is either sold for USD or exchanged for another property in a barter transaction (such as Bitcoin for other convertible digital currency in this case), a tax event has occurred. It requires and individual to compute the quantity (USD value) and the nature (long term or short term) of the capital gain or loss at the point of sale or exchange of the property. If you are looking for more detailed insight on how to calculate capital gains and losses, please see my earlier post US Tax Considerations When Blogging for Magic Internet Money (Part II). However, certain types of property exchanges permit the capital gains tax to be deferred until a later period when one disposes the property through sale or exchange for a different property.