Cryptocurrency Q&A
Are cryptocurrencies tax-deferred 'like-kind' exchanges?
Are cryptocurrencies tax-deferred 'like-kind' exchanges?
Ilaria
Mon Jul 15 2024
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5 answers
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In recent years, cryptocurrencies have garnered immense popularity, but with this comes the inevitable question of how they fit into existing tax frameworks. Specifically, investors are wondering: are cryptocurrency exchanges considered tax-deferred 'like-kind' exchanges? The term 'like-kind' exchange typically refers to the swapping of assets of similar nature, such as real estate, without incurring immediate tax liability. However, given the unique and digital nature of cryptocurrencies, the answer is not as straightforward. It begs the question: do cryptocurrencies fall under the same category as traditional assets when it comes to tax treatment? Clarifying this matter is crucial for investors to ensure compliance and avoid potential tax penalties.
5 answers
Federico
Wed Jul 17 2024
However, the IRS has determined that cryptocurrencies, despite their digital nature, do not fall into the category of “like-kind” assets under the Code. This determination has significant implications for investors and traders who engage in cryptocurrency swaps.
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Valeria
Wed Jul 17 2024
On June 18, 2021, the Internal Revenue Service (IRS) issued a significant document, IRS Legal Memo 202124008, that sheds clarity on the taxation of cryptocurrency swaps.
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KatanaSharpened
Wed Jul 17 2024
In this legal memo, the IRS outlines its conclusion that swaps of certain cryptocurrencies do not qualify for the tax-deferred treatment afforded by Section 1031 of the US Tax Code. This section, prior to its amendment in 2017, allowed for the deferment of taxes on the exchange of “like-kind” properties.
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DigitalDynastyGuard
Tue Jul 16 2024
With this ruling, the IRS has effectively closed a potential tax loophole that some investors had hoped to exploit. Cryptocurrency swaps will now be subject to the same tax treatment as other asset sales, with the corresponding capital gains or losses being taxed accordingly.
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charlotte_clark_doctor
Tue Jul 16 2024
It is important to note that this ruling applies only to swaps that occurred after the amendment of Section 1031 in 2017. Transactions that occurred prior to that date may still be eligible for the tax-deferred treatment under the previous version of the Code.
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