The IRS determined this week that Bitcoin and other digital currencies should be taxed as property, not currency. This means Bitcoin transactions will be taxed as capital gains, not as ordinary income. But, perhaps surprisingly, the act of spending Bitcoin could trigger capital gains taxes. Thus, the use of virtual currencies as a medium of exchange may be complicated. Bitcoin is taxable upon receipt, starting with the “miners,” for whom it is earnings.  (Bitcoin is issued initially to “miners” who provide computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger.)  Sellers who receive Bitcoin in exchange for goods or services also owe tax on that income. The value at the time the virtual currency is received determines the amount of tax that is due. But here is the real surprise: Each time a consumer spends Bitcoin, he’ll have to figure the cost basis of his virtual currency, subtract it from the value of his purchase, and pay tax if there is a gain. But, if there’s a loss, it may not be deductible.  Investment and business losses generally are deductible, but personal-use losses are not.  And the IRS didn’t say whether Bitcoin losses are investment or personal. So, how is a purchase taxed?  Suppose I acquired a Bitcoin last month for $800, which appreciates in value to $900. If I use the Bitcoin to buy a $900 television, I would have $100 of gain, which is equal to the value of the TV less my $800 basis in the Bitcoin. If I acquire many Bitcoin at varying prices and spend them on many transactions, my calculations would be much trickier. And the prices of virtual currency are notoriously volatile. I would need to track my basis in each Bitcoin—and determine the value of each when it is spent. If Bitcoin were a currency, users could make these calculations using the many rules for foreign currency transactions. And a small gain (less than $200) from a transaction is ignored completely as long as the gain is attributable to exchange rate fluctuation and the transaction is personal and not for business or investment. If I purchased my television with Canadian dollars, for example, a small amount of currency gain would not be recognized. At the same time, foreign currency losses from a personal transaction generally would not be deductible. But the IRS says Bitcoin is not currency. Thus, taxpayers must calculate gain on every disposition. For small transactions, those calculations will be challenging. And the deductibility of losses is unclear.