Great question. I asked during yesterday’s AMA if Republic would be providing tax advice, and Kendrick Nguyen (CEO of Republic) said: “Note holders will be responsible for their own taxes but will provide some guidance and hopefully product support down the road.”
If I had to guess, based on what I currently do for other tokens that I hold, it might look something like this (obviously everyone’s situation is unique, this is NOT tax advice):
- When you initially purchase Note tokens, that will be treated as the cost basis for your investment (the same as if you purchased stock)
- If you receive Note tokens for free – i.e. from converting your Reward Notes to Republic Notes at a 1:1 basis, you may have to claim that as ordinary income. However, if you consider it as a gift, the IRS gift limit in 2019 was that you don’t have to claim it if it’s up to $15,000
- For distributions, I’m guessing those would be treated as ordinary, non-qualified dividends, taxed at your ordinary income rate. There is a chance that they may structure it such that they would be considered qualified dividends.
- If you later sell your Republic Notes for a loss or gain, you’d be responsible for long-term and/or short terms gains or losses, the same as stock.
Again, those are just my assumptions as of now. We’ll have to see how they actually set it up.