Recent IRS Memorandum Reaffirms Bitcoin, Ether & Litecoin Exchanges Are Not Like-Kind

Tax legislation before January 1, 2018 let you defer capital gains taxes if you trade one house with another similar land (also referred to as a Like-Kind trade ). Determined by this tax legislation and also the murky crypto tax advice that originated before 2018, a few cryptocurrency holders employed like-kind exchange remedy to crypto-to-crypto transactions and paid no taxes to profits. A brand new IRS memorandum published today imply that trades between bitcoin, ether & litecoin aren’t qualified for the like-kind of market therapy.

Like-kind Exchanges & Cryptocurrency Taxes

Back in 2014 and 2019, the IRS said that crypto-to-crypto transactions are taxable.

Q-6: Can a citizen have profit or lack of a market of digital money to additional land?

A-6: Yes.

“Should you swap virtual money held as a capital asset to additional land, such as for products or for a different virtual money, you may realize a capital gain or loss”

If it has to do with jurisdiction, tax legislation takes priority over taxation records such as 2014-21 and FAQs printed in the IRS site. Thus, relying upon authoritative §1031 of all IRS tax code, a few taxpayers employed like-kind exchange remedy for crypto-to-crypto trades happened before 2018. Taxpayers who obtained this place filed Form 8824 (Like-Kind Exchanges) to record crypto-to-crypto profits and deferred capital profits.

(The Tax Cuts and Jobs Act (TCJA) restricted currency exchange therapy simply to property effective January 1, 2018. Consequently, the applicability of beforehand market remedy for crypto isn’t any more a contentious issue )

IRS Chief Counsel Memorandum Issued At June 2021

The Memorandum (Number: 202124008) published on June 18, 2021 expressly mentions that trades involving bitcoin, Litecoin along with ether before January 1, 2018 aren’t qualified for its like-kind exchange therapy. That is only because these coins aren’t like-kind when it has to do with the total style, planned use, real usage, character and nature.

Additionally, it states that the information given this is”restricted to the trades between Bitcoin, Ether, or even Litecoin. This primary counsel advice doesn’t deal with some cryptocurrencies, or some other investigations not discussed within this advice. Thus, no inferences must be made dependent on this initial counselor advice which aren’t explicitly set forth within this information”.

Nevertheless, if we employ the analysis employed in this memorandum on additional cryptocurrency trades, virtually all crypto-to-crypto trades are considered taxable occasions and qualify for its like-kind exchange therapy, with no uncertainty. In the end, in case you implemented the like-kind exchange remedy for crypto-to-crypto transactions before 2018, it’s advised to speak with an experienced tax advisor and consider your alternatives.