In a new rule released on Tuesday, the Internal Revenue Service says it will treat bitcoin and other virtual currencies as property.
The Wall Street Journal reports this means any profits made on the currency will be taxed at the capital-gains rate and that investors will have to keep extensive records.
The Journal adds:
"The announcement in general was expected to be greeted favorably by the fledgling industry, and many had anticipated exactly this result. But the announcement also served as a reminder that new technologies often can't avoid being subject to the old rules for long.
"In a notice, the IRS said that it generally would treat bitcoin held by investors much like stock or other intangible property. If the virtual currency is held for investment, any gains would be treated as capital gains, meaning they could be subject to lower tax rates.
"The top long-term capital-gains-tax rate is 20%, while the top ordinary income-tax rate is 39.6%, although add-on taxes often make both rates somewhat higher. But as capital investments, loss deductions from bitcoin often would be limited, whereas currency losses can be easier to deduct up front."