After almost a decade in obscurity, cryptocurrency exploded onto the financial world in 2017. Everyone has heard of Bitcoin, and more than a few people have made fortunes from trading in the rapidly expanding cryptocurrency marketplace.

However, much of the cryptocurrency world still remains uncertain and obscure. This is particularly true in the matter of how various governments will apply taxes to cryptocurrency gains and losses.

While it is expected that the tax treatment of cryptocurrency will continue to evolve, here is an outline of the U.S. tax rules so far for cryptocurrency for the 2017 tax year.

Cryptocurrency Are An Asset

Despite the fact that much of cryptocurrency’s notional value is from the revolutionary transaction system that blockchain technology empowers, the tax code treats it like an asset. Therefore, cryptocurrency is not a currency like the dollar, euro, pound or yen, but rather a property or asset like stocks, bonds, precious metals and real estate.

Therefore, any cryptocurrency sales for conventional currency, trades for other cryptocurrency and use for the purchase of goods and services all fall under the existing rules for capital gains taxation. Just imagine that your cryptocurrency is gold, and that people regularly trade gold with other precious metals and use it to buy goods and services directly, and you will have the general picture of how the tax code will treat your cryptocurrency trades for the 2017 tax year.

The Income Exceptions

The two exceptions to the application of existing capital gains taxes to cryptocurrency are for when your cryptocurrency trading is treated as income instead.

The first exception is for full-time cryptocurrency traders. This is the same rule that applies to traders of conventional assets, where it is treated as income and not capital gains when it is your primary profession. The determination of the difference between a ‘trader’ and an ‘investor’ applies the same to cryptocurrency traders as it does to conventional ones. This determination is not set in stone, but applied on a case by case basis.

The second exception is for cryptocurrency mining. The most prominent example of cryptocurrency mining is with Bitcoin, where the transaction system is powered by a distributed number of voluntary Bitcoin miners who are rewarded for their efforts with Bitcoins. Any cryptocurrency acquired through mining efforts is considered a form of income and not capital gains.

Coin-to-Coin Trades

The complexity of cryptocurrency taxes mostly stems from the issue of coin-to-coin trading, when one cryptocurrency is exchanged for another. As with any asset-to-asset trade, a ‘fair market value’ should be applied to both ends of the transaction for determining the amount of capital gains or losses. However, many cryptocurrencies have highly variable or uncertain prices, so it can be hard to determine the exact price that should be applied to one or both ends of any transaction.

The safest bet in this situation is to use the closing price for each cryptocurrency on the transaction day.

Hard Forks

The final major issue with U.S. cryptocurrency taxes for the 2017 year is that of ‘hard forks’. A hard fork occurs when a cryptocurrency splits according to different styles of managing the blockchain process, the most notable such event being the split between Bitcoin and Bitcoin Cash.

In this situation, the newly issued cryptocurrency becomes a taxable entity as soon as it has a closing market price. So if you received Bitcoin Cash from the forking event, for example, then it should be valued according to the market value of Bitcoin during the fork day, and Bitcoin Cash at any time after the market closed on that day.