Is there a loophole in the US Internal Revenue Code that can be applied to crypto-currency swaps?steemCreated with Sketch.

in #crypto-currencies7 years ago (edited)

Yesterday, I came across this interesting video with the title “New IRS 2018 Tax Code Screws Crypto Traders!”:

However, there might be a loophole left for the remaining two days of 2017: it's up for a debate whether Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031) can be applied to cryptos, given that IRS says that cryptos are property and not currency (and I think they are right):

https://www.law.cornell.edu/uscode/text/26/1031

Subsection (a) (1) reads:

“(1) In general
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment."

and then in subsection (2) exemptions from that 1031 exemption follow, none of them, in my opinion, relate to cryptos:

(2) Exception
This subsection shall not apply to any exchange of—
(A) stock in trade or other property held primarily for sale,
(B) stocks, bonds, or notes,
(C) other securities or evidences of indebtedness or interest,
(D) interests in a partnership,
(E) certificates of trust or beneficial interests, or
(F) choses in action.
For purposes of this section, an interest in a partnership which has in effect a valid election under section 761 (a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership.”

In short, 1031 exchange is a swap of one investment asset for another, and it is not treated by IRS as a taxable sale; however, following the latest vote in Congress, from 2018, only the exchanges of real estate are will be subject to 1031; it can be therefore deduced from this that cryptos swaps done b e f o r e 2018 should be subject to 1031. Of course, this exemption would apply to swaps in cryptos and it wouldn’t apply to those who sold their crypto and bought something else for fiat, as 1031 exchange exemption doesn’t apply if you sold your house and bought something for it.

Sort:  

Congratulations @grzegorzkol! You received a personal award!

Happy Birthday! - You are on the Steem blockchain for 2 years!

You can view your badges on your Steem Board and compare to others on the Steem Ranking

Vote for @Steemitboard as a witness to get one more award and increased upvotes!