CRYPTOCURRENCY INVESTORS LOSE MAJOR TAX BREAK UNDER NEW U.S. TAX CODE

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The recent overhaul amends a part of the tax code regarding exemptions for “like kind exchanges,” allowing investors to swap similar assets without triggering a tax event. These so-called “1031 exchanges” have long been used by traders to exchange property, such as art or real estate, without having to pay taxes on it.

Since March 2014, the IRS has treated Bitcoin and other digital currencies as property for tax purposes. This makes them subject to capital gains tax, requiring taxes be paid whenever crypto is exchanged for fiat currency (ie. cash).

Coins held for less than a year are subject to regular income tax, which can range anywhere from 10 to 37 percent, depending upon personal income levels. Coins held for longer than one year are subject to long-term capital gains tax, which caps at around 24 percent.

However, it has never been clear whether a trade between two different cryptocurrencies qualifies as a “like kind exchange.” Up until this point, cryptocurrency trades have typically resided in this legal gray area, granting most traders a loophole for deferring taxes on short-term capital gains.

However, the new amendment definitively narrows the 1031 exemption to only cover real estate swaps, excluding Bitcoin entirely. It specifically limits the scope of the law from previously covering “property” to now only covering “real property.” And as a digital asset, cryptocurrency is about as far from “real property” as one can get.

The end result is that, starting next year, effectively all cryptocurrency trades will be taxed at the time of their execution, bringing an end to one of the most lucrative tax loopholes previously available to traders.


http://bitcoinist.com/cryptocurrency-investors-lose-tax-break/