The IRS treats bitcoin as property, so selling it is a taxable disposition. Borrowing cash against bitcoin, however, does not require a sale and is generally not a taxable event. Consult a tax professional for guidance specific to your situation.

Non-taxable events

In most cases, the following do not trigger taxes:

• Opening a loan or line of credit
• Drawing cash from your line of credit
• Repaying principal or interest from your cash balance or linked bank account
• Adding or withdrawing collateral (when no sale occurs)

Taxable events

Using borrowed cash

Borrowing cash against your bitcoin is generally not a taxable event, but how you use that cash can carry its own tax consequences.

Using bitcoin balance for interest and principal payments

If you make interest or principal payments from your bitcoin balance, your bitcoin is automatically sold to cover the payment. Because this is a sale of bitcoin, it is treated as a taxable disposition.

Collateral liquidations

Involuntary sales of bitcoin collateral (liquidations) are also taxable events. These apply to both loans and lines of credit and can occur when:

• An interest or principal payment fails: If a scheduled payment fails and the 10-day grace period expires, enough bitcoin collateral is sold to cover the overdue amount.
• A margin call remains unresolved: If a margin call is not resolved within 72 hours, enough bitcoin collateral is sold to return your LTV to the recovery threshold.
• The liquidation threshold is reached: If your LTV reaches 85%, bitcoin collateral is sold immediately and automatically to return your LTV to the recovery threshold.

All bitcoin sales and liquidations appear as taxable dispositions on your tax documents.