Earlier this week, Tesla Inc TSLA announced that customers could now buy a Tesla with Bitcoin BTC/USD, but Ark Invest's Cathie Wood isn’t so sure investors should use it as a means of payment.

What Happened: In a webcast hosted by CBOE, Wood said that those that made profits from Bitcoin’s rally may be the subject of scrutiny by the IRS.

The ARK Invest founder explained, "The IRS has something to say about this, so if you have huge gains in your bitcoin, I don't think I would bear much in the way of transactions until we get maybe some changes on the tax front.”

Why It Matters: From a tax point of view, the IRS currently treats Bitcoin and other cryptocurrencies as “property,” as they do stocks and bonds. As a result, when investors sell their Bitcoin for fiat currency or use it as a means to purchase another good, they could be subject to massive capital gains taxes.

Capital gains on taxes on assets that have been held for less than a year are taxed the same as a person’s “other income,” while assets that are held for longer than this period would be subject to long-term capital gains taxes ranging from 15-20%.

While this would make any Tesla purchases with Bitcoin somewhat unfavorable for those that bought the cryptocurrency last year, more recent investors may actually benefit from the current rules.

For instance, if an investor purchased the leading cryptocurrency at a higher price than its current value, he or she could actually report a loss and receive a tax deduction for the value of the asset.

Price Action: After a volatile week, Bitcoin price recovered from yesterday's low of $50,856 to $53,900 today. At press time, the cryptocurrency was trading at $53,223, according to data from CoinMarketCap.

Related Stories

Should you Buy a Tesla with BTC?