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Mini data sheet on tax implications for cryptocurrency trading in the United States
#26

Mini data sheet on tax implications for cryptocurrency trading in the United States

Good question redbeard. I'd love to hear an answer to this. Holding usd in my Coinbase/GDAX would allow me to day trade a lot easier. I'm just concerned if this is a taxable event.
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#27

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-15-2017 07:34 AM)Travel Museums Wrote:  

Good question redbeard. I'd love to hear an answer to this. Holding usd in my Coinbase/GDAX would allow me to day trade a lot easier. I'm just concerned if this is a taxable event.

Only cashing out is taxable.

https://www.bitcoin.tax/ (Coinbase allows a similar service I think)
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#28

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-15-2017 08:24 AM)LouEvilSlugger Wrote:  

Quote: (06-15-2017 07:34 AM)Travel Museums Wrote:  

Good question redbeard. I'd love to hear an answer to this. Holding usd in my Coinbase/GDAX would allow me to day trade a lot easier. I'm just concerned if this is a taxable event.

Only cashing out is taxable.

https://www.bitcoin.tax/ (Coinbase allows a similar service I think)

Good website, thanks.

From https://bitcoin.tax/faq

Quote:Quote:

I didn't move any money out of the exchange, I just bought back in. What about then?

Yes. A tax event occurred and you gained money, even though it isn't in your bank account. For tax purposes it is treated no differently.

I bought some things with Bitcoins directly, do I owe taxes?

Probably, but depends on your country. If it's considered as a tax event, then you are essentially exchanging Bitcoins for goods or services. You may have gained in doing so, and therefore it has to be reported. Say you bought 1 BTC for $10. Now say that Bitcoin is worth $100 and you buy a $100 gift card. You got a $100 gift card for only $10. That $90 is gains and taxable.
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#29

Mini data sheet on tax implications for cryptocurrency trading in the United States

So selling BTC at a profit to your coinbase wallet is taxable?
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#30

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-15-2017 08:31 AM)Travel Museums Wrote:  

So selling BTC at a profit to your coinbase wallet is taxable?

Yes, it always was a taxable event. Just like buying a gold coin and selling it later for profit. Previously it was up to you to report the event, but with the stratospheric rise in interest in bitcoin the government now wants its fingers in the whole mess.
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#31

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-15-2017 08:31 AM)Travel Museums Wrote:  

So selling BTC at a profit to your coinbase wallet is taxable?

Correct. It doesn't matter where the cash is, all that matters is that value was transferred from a crypto asset to a fiat base.

That's why I'm considering taking the slightly riskier route of selling my crypto assets to something like USDT. It's pegged to the dollar, but not an actual dollar; it's still a cryptocurrency and thus would fall under the 1031 rules for like-kind exchanges.

I'm still researching additional possibilities, so if anyone can find a better solution I'm sure everyone here would be eager to hear about it.
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#32

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-14-2017 09:57 PM)CleanSlate Wrote:  

With the S.1241 being introduced into the Senate -- which essentially outlaws cryptocurrencies -- would you ironically get in trouble for doing the right thing, which is to report your gains from trading cryptos?

Always report your gains, the IRS won't prosecute you for it being illegal nor report you to the feds (FinCEN, DHS, HSI).

I know a couple of strippers and drug dealers that report their dirty money to the IRS and pay taxes. So far (10+ years) they haven't been arrested for their activities.

As one of them said "Fuck the DEA, FBI, and ICE. They can go to hell. But I do not want to fuck with the IRS...they will shut my (legit) business, bank accounts, and credit cards down....and bring the other agencies with them".

I also know a couple that got arrested and never paid their taxes. Guess what happened? The feds added charges for money laundering and tax evasion, IRS froze all their accounts.....and they had to pay fines/interest/etc.

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#33

Mini data sheet on tax implications for cryptocurrency trading in the United States

I found this article on Forbes:

https://www.forbes.com/sites/laurashin/2...-more/amp/

The most relevant parts to this thread here:

Quote:Quote:

6. Trading

Like the buying and selling of a stock, when you trade for Bitcoin, there’s no immediate taxable event, but you have to record the fair market value and the date. The taxable event occurs upon disposition — either when you sell it or pay with it.

Because this is a new industry, if you are trading, you should check with your exchange to find out if it issues a 1099-B report at the end of the year, which will identify your gains and losses. Among some of the major digital currency exchanges — ItBit, Coinbase and Gemini — itBit releases 1099-Bs to its users, Coinbase sends out “a specialized Cost Basis for Taxes report” plus has a partner integration with LibraTax, and Gemini’s CEO and cofounder Tyler Winklevoss said by email, “we will deliver to our customers the appropriate information prior to April 15, 2016 so our customers can comply with applicable federal tax law.”

And how to account for your trades (LIFO = last-in-first-out, FIFO = first-in-first-out):

Quote:Quote:

Deciding Which Bitcoin Is Being Disposed Of

The difficulty of all these rules is that, in any particular disposal scenario, you may not know which particular Bitcoin you are spending, tipping, gifting, donating, etc. “Think of [Bitcoin] as liquid. If you poured two Bitcoin into the same wallet/glass, it’s just mixed liquid and there’s no way to really separate those two glasses you mixed together,” Benson says.

For that reason, it’s more practical to use one of the two common accounting methods: last in, first out (LIFO), or first in, first out (FIFO). In LIFO, you always assume disposal of your newest asset or coin. In FIFO, you always assume disposal of your oldest.

Individuals can change their accounting method from year to year.

So if the price of Bitcoin or your digital currency has risen over the year, LIFO is ideal. That will help minimize your gains and the taxes you will pay on them. If the price is falling however, then go with FIFO, because you can maximize your losses and claim a deduction, which will reduce your taxable income.

Businesses, however, can’t switch from year to year. They usually have to choose an accounting method and stick to it.

Another option is to use what’s called “specific share identification.” If your records are in good enough order, every single time you dispose of an asset, you can select the highest cost one to either maximize a loss (and your tax deduction), or realize a smaller gain (and minimize your tax). Benson’s software offers an option called Libra Optimize, which, instead of using LIFO or FIFO, will mathematically reduce your tax obligation using this methodology.

In bitcoin.tax, you can select FIFO, LIFO, Average Cost, and a few other methods to see which gives you less tax liability. But it sounds like the IRS will only accept either LIFO or FIFO. I'll ask my accountant, and encourage U.S. guys to do the same... especially if a lot of money is at stake and with the IRS subpoena on Coinbase/GDAX.
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#34

Mini data sheet on tax implications for cryptocurrency trading in the United States

^ my accountant says first-in-first-out. If cost basis is unknown, make a reasonable estimate.
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#35

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-13-2017 08:37 PM)Seth_Rose Wrote:  

To avoid taxes, couldn't someone just buy as many things online as possible with BTC to avoid transferring the BTC to USD?

Or sell to friends or on Craigslist strictly cash transactions
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#36

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-19-2017 02:49 PM)jamaicabound Wrote:  

Quote: (06-13-2017 08:37 PM)Seth_Rose Wrote:  

To avoid taxes, couldn't someone just buy as many things online as possible with BTC to avoid transferring the BTC to USD?

Or sell to friends or on Craigslist strictly cash transactions

For direct transactions, there is also bitcoin meetups, and those will vary from city to city, or creating a local bitcoin's account, which will also vary from city to city.

I have been actively using local bitcoin's for nearly 2 years, and I am a bit strict about following the terms of my advert - in part, because I am trying to get customers who are compliant, and I feel that is more likely to weed out scammers.

I also have a policy/practice that I mostly follow with my local bitcoins's connections, and that is to conduct the very first transaction through local bitcoins, and thereafter, if I am comfortable with the person, to conduct subsequent transactions directly.

I understand that markets can be different depending on where you are at; however, it seems that a overwhelming number of my local bitcoins' connections want to deal directly, rather than through local bitcoins' - even on the first transaction and even though the person who places the advert has to pay the 1% fee. Since I place the advert, I have to pay the 1% fee, but I think that in my area there are so many of the Bitcoin sellers on local bitcoins that only use the local bitcoin service to connect with buyers and they actually convert to direct transactions in order to avoid the 1% fee. I don't have any problem with folks avoiding the 1% fee - and I am kind of the same way, except that I think that it is worth the 1% fee on the first transaction, just to attempt some kinds of screening of possible scammers.

Probably about 30% of my local bitcoin transactions resulted in subsequent direct transactions, and maybe about 10% became repeat and regular customers of mine to perform direct transactions on a fairly regular basis. Certainly, results are going to vary, but sometimes when you have a few regular people, it is not always easy to service everyone because they tend to communicate in spurts - rather than a method that would be more spread out and preferred.
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#37

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (06-15-2017 06:41 PM)Cattle Rustler Wrote:  

Quote: (06-14-2017 09:57 PM)CleanSlate Wrote:  

With the S.1241 being introduced into the Senate -- which essentially outlaws cryptocurrencies -- would you ironically get in trouble for doing the right thing, which is to report your gains from trading cryptos?

Always report your gains, the IRS won't prosecute you for it being illegal nor report you to the feds (FinCEN, DHS, HSI).

I know a couple of strippers and drug dealers that report their dirty money to the IRS and pay taxes. So far (10+ years) they haven't been arrested for their activities.

As one of them said "Fuck the DEA, FBI, and ICE. They can go to hell. But I do not want to fuck with the IRS...they will shut my (legit) business, bank accounts, and credit cards down....and bring the other agencies with them".

I also know a couple that got arrested and never paid their taxes. Guess what happened? The feds added charges for money laundering and tax evasion, IRS froze all their accounts.....and they had to pay fines/interest/etc.

Good Advise .... always report your income

Bad Advise ... report your criminal activity to a branch of government because they will not prosecute you .... bad advise because they will share this information with another branch of government which will prosecute you. I dare anyone to list your occupation as "drug dealer" in your tax return ... dumbest thing ever

Have you heard of Audits? well truth be told 100% of tax returns go through an audit ...... Tax returns go through the computer system which looks for common red flags (this is the initial audit), and one of things it looks for is for illegal activities listed in the occupation .... or you think governments like competition?!

Dealing with illegal drugs is an illegal activity so that person will raise a red flag.

Also, being a stripper is not illegal so they are expected to report their income and actually the strip club issues them 1099 ...

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#38

Mini data sheet on tax implications for cryptocurrency trading in the United States

I wouldn't hurry in treating two different cryptocurrencies as like-kind for the purpose of a 1031 exchange ..... section 1031 is very restrictive in this sense ....
First of all you have to qualify the property as being held for business or investment purposes. So if you are constantly exchanging the IRS will take the position that you are not holding for those purposes but rather you are trading. But even if you buy and hold for investment purposes you only cleared hurdle one. The next step will be to qualify the two cryptocurrencies as like-kind; which, in my opinion, will not be a very strong position.

Also, as an examples let's illustrate the way the IRS treats the exchange of different property:
1) metals, you can exchange gold that is valued for its metal content for other gold that is valued for its metal content. You can not exchange gold valued for its metal content for silver valued for its metal content.
2) livestock, you can exchange two livestock held for investment or breeding of the same sex .. but you can't exchange livestock of different sex.

See the pattern? in the examples above you can see the intent of section 1031 which is to replace business property or personal property held for investment for the like. They have the same nature and specific purpose. Even though I didn't find any ruling, memos, opinions directly related to the exchange of different crytocurrencies, I am confident the IRS will not allow their like kind exchange. I am sure we will see it soon play out with a real example because someone is going to try it. But unless you have the resources to challenge they IRS when they disallow your exchange, I wouldn't try it. My opinion.

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#39

Mini data sheet on tax implications for cryptocurrency trading in the United States

^ that would complicate things, for sure.

But the best we can do right now is download our transaction histories off the exchanges, put it through a tax cruncher like bitcoin.tax, and just report whatever it spits out.

That way we can say "hey, at least I tried."
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#40

Mini data sheet on tax implications for cryptocurrency trading in the United States

Good data sheet. The only thing I would mention or question is about trading from crypto to crypto and whether the IRS will consider that a like kind exchange. I think that's still kind of up in the air from what I've heard and read.
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#41

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (08-01-2017 01:24 AM)CleanSlate Wrote:  

^ that would complicate things, for sure.

But the best we can do right now is download our transaction histories off the exchanges, put it through a tax cruncher like bitcoin.tax, and just report whatever it spits out.

That way we can say "hey, at least I tried."

Yes, you will always report your transactions (dispositions) in your US tax return; unless you want to get in trouble. I am not familiar with the tools at bitcoin.tax so I don't know how accurate they are. Ideally, you receive a 1099 from whatever organization you use for your trades.

And following in the subject .... I always advocate tax avoidance, not tax evasion. For tax avoidance to work, it has to be planned in advance and executed; it involves looking at your entire situation, including your long term goals.

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#42

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (08-01-2017 09:20 AM)jamaicabound Wrote:  

Good data sheet. The only thing I would mention or question is about trading from crypto to crypto and whether the IRS will consider that a like kind exchange. I think that's still kind of up in the air from what I've heard and read.



Quote: (08-01-2017 01:06 AM)Plus Oultre Wrote:  

I wouldn't hurry in treating two different cryptocurrencies as like-kind for the purpose of a 1031 exchange ..... section 1031 is very restrictive in this sense ....
First of all you have to qualify the property as being held for business or investment purposes. So if you are constantly exchanging the IRS will take the position that you are not holding for those purposes but rather you are trading. But even if you buy and hold for investment purposes you only cleared hurdle one. The next step will be to qualify the two cryptocurrencies as like-kind; which, in my opinion, will not be a very strong position.

Also, as an examples let's illustrate the way the IRS treats the exchange of different property:
1) metals, you can exchange gold that is valued for its metal content for other gold that is valued for its metal content. You can not exchange gold valued for its metal content for silver valued for its metal content.
2) livestock, you can exchange two livestock held for investment or breeding of the same sex .. but you can't exchange livestock of different sex.

See the pattern? in the examples above you can see the intent of section 1031 which is to replace business property or personal property held for investment for the like. They have the same nature and specific purpose. Even though I didn't find any ruling, memos, opinions directly related to the exchange of different crytocurrencies, I am confident the IRS will not allow their like kind exchange. I am sure we will see it soon play out with a real example because someone is going to try it. But unless you have the resources to challenge they IRS when they disallow your exchange, I wouldn't try it. My opinion.

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#43

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (08-01-2017 10:35 AM)Plus Oultre Wrote:  

Even though I didn't find any ruling, memos, opinions directly related to the exchange of different crytocurrencies, I am confident the IRS will not allow their like kind exchange.

It's fascinating how the people who assure me this tax strategy won't work never have any evidence with which to back up that assertion.

My OP links directly to the IRS's website multiple times. I have clearly done my research and compiled a strategy based on the exact letter of the law. Crypto is classified as property, and crypto-to-crypto trades meet every requirement for 1031. It's remarkably straightforward.

While I welcome anyone who can point out flaws in my approach, simply saying "I'm confident this won't work even though I have ZERO evidence to back that up" is simply spreading FUD.

If the law changes, I'll change my strategy. But it doesn't make sense to formulate investment plans based on IMAGINARY laws that may or may not come to pass, when the current laws spell out quite clearly the structures and limitations by which cryptocurrency trades can be taxed.

As the saying goes, "Those who say it cannot be done should not interrupt the person doing it."
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#44

Mini data sheet on tax implications for cryptocurrency trading in the United States

What if you are gifted BTC or someone pays you in BTC for anything or you exchange cash for it as investment but it's not through coinbase, etc.?

Do you then report it as an "investment" property that year on your tax return so later on if you want to sell and cash out you can provide a cost basis?

Here's an example. I somehow get 10k + but less than 20k in bitcoin, let's say 3 coins. What do I do if that's not purchased from an exchange like coinbase to give me paperwork?

What if you forget to do any of this entirely, had 3 coins and in 5 years a coin all of a sudden each coin was worth $55k? What would you do then?
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#45

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

What if you are gifted BTC or someone pays you in BTC for anything or you exchange cash for it as investment but it's not through coinbase, etc.?

Do you then report it as an "investment" property that year on your tax return so later on if you want to sell and cash out you can provide a cost basis?

Here's an example. I somehow get 10k + but less than 20k in bitcoin, let's say 3 coins. What do I do if that's not purchased from an exchange like coinbase to give me paperwork?

What if you forget to do any of this entirely, had 3 coins and in 5 years a coin all of a sudden each coin was worth $55k? What would you do then?

Those are all great questions, but a bit outside the scope of this data sheet (particularly because in large part they'll vary depending on the jurisdiction in which you live).

I'd suggest reaching out to a local tax attorney for more personalized advice.
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#46

Mini data sheet on tax implications for cryptocurrency trading in the United States

I wasn't talking out of my ass .... I explained my rationale of why my opinion was such that different cryptos will not be treated as like-kind by the IRS, and I offered you two real life examples of the IRS disqualifying similar properties for the purpose of 1031 exchanges (metals and livestock.) That is what you do when there is no guideline.

Your position is not frivolous, that's good, but when you scratch the surface truly it doesn't have much chance to be sustained. We know the IRS classifies cryptos as property, but that doesn't immediately qualify them for like kind exchange. Two different cryptos are not the same, and you will have a very hard time showing they are.

I inserted myself in the conversation because I think this technique if taken to action will get people in trouble with the IRS. So my recommendation was -and still is- not to do it. My line of work puts me in close contact with the IRS daily, so my opinion has weight ... but you had no way of knowing it. So, no. I offer no evidence; however, that doesn't mean that I will not try to get you to stay out of trouble with a strategy that neither has shown evidence of working.

I shine light to the high risk of your strategy. The IRS is the one agency you don't want to mess with because it has the real potential of screwing your life up. However, if you go ahead and try your strategy make sure it is all well documented and follow all the rules of Section 1031, and I wish you good luck.

In the meantime, here is some reading. It is a very recent article, so it looks like this is a hot subject. I thank you for bringing this up, this subject picked my interest and I started researching it. If I do find a way to make it work, you will be the first one to know via this thread.

I insert the article so no need to leave the forum to read it. I hope it brings some extra light to the subject.


https://www.forbes.com/sites/greatspecul...dd16e826a8

Quote:Quote:

Cryptocurrency Traders Risk IRS Trouble With Like-Kind Exchanges

Many cryptocurrency investors are inappropriately deferring capital gains taxes when they exchange one cryptocurrency for another. An example of this practice: exchanging Bitcoin for Ethereum through a cryptocurrency exchange and using IRC Section 1031 “like-kind” exchanges. But if you were to sell Bitcoin for U.S. dollars and buy Ethereum with U.S. dollars, you would have to report a capital gain or loss. Something is amiss!

Several websites encourage traders to consider Section 1031 on exchanges of cryptocurrencies, but none of them adequately state the potential risks.

“I suppose most people who don’t report exchanges between various cryptocurrencies don’t think of it as a like-kind exchange,” says Deborah King, CPA. “They just do it, and later when they don’t receive a Form 1099, they forget about reporting it.” That’s even worse.

The IRS thinks there is massive under reporting of income

It doesn’t sound like cryptocurrency investors, and traders are duly complying with Section 1031′s elaborate requirements. Few disclose Section 1031 transactions on the required Form 8824. A failed Section 1031 transaction bars tax deferral, and it generates current taxable income.


Recently, the IRS served a “John Doe” summons (the toughest kind) to the largest cryptocurrency exchange, Coinbase, to obtain its customer list for investors and traders with cryptocurrency transactions worth over $20,000. The IRS calculated that less than 900 taxpayers reported capital gain or losses on cryptocurrency transactions in 2015, an alarmingly small number. It’s feasible that many taxpayers inappropriately tried to use Section 1031 like-kind exchanges on cryptocurrency exchanges, and did not disclose it to the IRS on Form 8824, or otherwise.

Cryptocurrency transactions are not “covered instruments” on Form 1099Bs, so cryptocurrency exchanges/dealers did not furnish tax information to the IRS. The IRS also knows that many lawbreakers hide income in cryptocurrency transactions.

How do Section 1031 like-kind exchanges work?

Section 1031 allows a taxpayer to exchange, rather than sell, real property and personal property with another taxpayer in a tax-free exchange. You must hold the property for investment or productive use in a trade or business, and it excludes inventory. For example, enact a like-kind exchange with a commercial building for a shopping mall, or an automobile for another one, but not a truck.

According to Thomson Reuters Checkpoint, “If it’s a straight asset-for-asset exchange, you will not have to recognize any gain from the exchange. You will take the same ‘basis’ (your cost for tax purposes) in your new property that you had in the old property. Even if you do not have to recognize any gain on the exchange, you still have to report the exchange on Form 8824.” If you receive cash or other non-like-kind property (“boot”) in the exchange, you’re required to report boot as taxable income and adjust your cost basis.

Cryptocurrencies may not qualify as like-kind property

If it’s not like-kind property, it’s not a like-kind exchange. Section 1031 specifically excludes stocks, bonds, notes, and indebtedness. It does not mention “cryptocurrency” or “virtual currency” since Section 1031 predated the advent of cryptocurrencies.

“Transactions for two biggest cryptocurrencies, Bitcoin and Ethereum, are priced in different ways, and there are other fundamental differences, too,” says Darren Neuschwander, CPA.

The IRS could rule they are not like-kind property. It’s interesting to see how the IRS ruled on like-kind exchanges between coins and bullion. (Read Bitcoin taxation: Clarity and mystery. See the discussion of Section 1031 and the chart “Sec. 1031 rulings involving coins and bullion.”) In some cases, exchanges of gold for gold coins or silver for silver coins may qualify as like-kind property, but gold for silver coins is not like-kind property. An exchange of U.S. gold coins for South African Krugerrand gold coins was not like-kind property because the coins have a different composition. Krugerrands are bullion-type coins whose value is determined solely by metal content, where the U.S. gold coins are numismatic coins whose value depends on age, condition, number minted, and artistic merit, as well as metal content.

IRS hasn’t addressed Section 1031 on cryptocurrencies

In March 2014, the IRS issued long-awaited guidance (IRS Notice 2014-21) labeling cryptocurrency “intangible property,” but the IRS did not address the use of Section 1031. Investors and traders hold Bitcoin as a capital asset, so it receives capital gain and loss treatment. The AICPA and others requested further guidance from the IRS, including if investors could use Section 1031. The IRS has not yet answered in public.

With a lack of IRS guidance, using Section 1031 on cryptocurrency trades is uncertain, and I suggest wrong in almost all facts and circumstances. There is no “substantial authority” for its use, which would be required to avoid tax penalties.

Two-party vs. multi-party like-kind exchanges

Section 1031 is used most often in real property transactions, such as in commercial real estate. For example, taxpayer A wants to sell real property one (RP1), but defer capital gains taxes by doing a like-kind exchange for real property two (RP2). It’s unlikely that taxpayer B, owner of RP2 wants to do a like-kind exchange with A, which would otherwise be a “direct two-party exchange.”

It’s common for A to engage a “qualified intermediary” (QI) in a “multi-party like-kind exchange.” For example, A transfers RP1 to QI, who withholds cash payment to A. B transfers or sells RP2 to QI who then transfers RP2 to A, thereby completing A’s like-kind exchange. Section 1031 has many requirements including various procedures, documentation, and reporting. Non-compliance leads to a failed Section 1031 transaction, which negates tax deferral.

Like-kind exchanges are not happening on cryptocurrency exchanges

There aren’t direct two-party like-kind exchanges between trader A and B through the exchange. Trader A doesn’t meet or know trader B, and each executes their trades directly with the exchange.

There also isn’t a multi-party like-kind exchange. Taxpayer A trades on the exchange, and the exchange does not meet the Section 1031 requirement for acting as a QI in a multi-party like-kind exchange. The exchange does not complete any of the required paperwork as a QI, and the trades occur in nanoseconds, not over months.

The IRS would likely consider the exchange a dealer. Section 1031 prohibits dealers from participating in direct two-party like-kind exchanges since dealers hold inventory in a trade or business, not capital assets. The IRS would likely treat the exchange as a disqualified person in a multi-party like-kind exchange.


It might be possible for cryptocurrency holder A to execute a direct two-party exchange with holder B if he knows him and executes the transaction off-exchange. However, the IRS might not consider Bitcoin like-kind property with Ethereum.

Accuracy related penalties and the statute of limitations

The IRS is coming after cryptocurrency investors, traders and users to collect its share of the significant income made in cryptocurrencies since 2009. The IRS will likely assess accuracy related penalties: A negligence penalty of 20% and a substantial understatement penalty of 20% if you understate your income by 10% or more. (Read Avoiding Penalties and the Tax Gap.)

Don’t count on the year closing after three years. If a taxpayer omits more than 25% of taxable income (substantial omission), the statute of limitations expands to six years. If the IRS can establish a false or fraudulent return, or willful attempt to evade tax, or failure to file a return, then the year never closes. The John Doe summons on Coinbase reminds me of the IRS strong-arming foreign banks to bust Americans who hid income and assets in offshore bank accounts.

If you have under-reported income on cryptocurrency sales and exchanges, it’s wise to consult a cryptocurrency tax expert and consider amending prior tax returns before the IRS catches up with you. That may help with a request for penalty abatement or reduction. Hopefully, the IRS will issue more guidance on these questions soon. (Read my recent blog posts: How To Report Bitcoin Cash And Avoid IRS Trouble, and If You Traded Bitcoin, You Should Report Capital Gains To The IRS.)

Darren Neuschwander, CPA and Deborah King, CPA contributed to this blog post.

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#47

Mini data sheet on tax implications for cryptocurrency trading in the United States

Relevant only if you have to file a tax return in the US ...... see below

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

What if you are gifted BTC

If someone gifts you property, they are responsible for the tax consequences.

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

or someone pays you in BTC for anything

If property you report it as any other exchange of property. If in the line of business, you report it as any other income.

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

or you exchange cash for it as investment but it's not through coinbase, etc.?
you report it as a disposition of assets.

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

Do you then report it as an "investment" property that year on your tax return so later on if you want to sell and cash out you can provide a cost basis?

Here's an example. I somehow get 10k + but less than 20k in bitcoin, let's say 3 coins. What do I do if that's not purchased from an exchange like coinbase to give me paperwork?
Even though you don't get paperwork, you as the taxpayer are responsible for the reporting the gain or the loss.

Quote: (08-17-2017 03:39 PM)Kid Twist Wrote:  

What if you forget to do any of this entirely, had 3 coins and in 5 years a coin all of a sudden each coin was worth $55k? What would you do then?
if you sold the coin today, you report this this year; it doesn't matter what the value of the coin is even the day after you disposed of it.
In cases of unreported income, they will normally go back 3 years; however in some circumstances -if substantial- they will go back 6 years, and in fraud cases the statue of limitation never closes.

"A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects."
— Robert Heinlein
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#48

Mini data sheet on tax implications for cryptocurrency trading in the United States

Here's an interesting article about tax and crypto currencies - and suggesting that not too many folks are reporting profits on crypto currencies.

Maybe they have not cashed out, yet? Folks are HODLing?


https://cointelegraph.com/news/only-802-...s-irs-says
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#49

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quick update: unfortunately the new 2018 tax bill explicitly limits 1031 exchanges to real estate transactions, meaning all crypto-to-crypto trades from Jan 1, 2018 going forward will be considered taxable events.

There are ways around this, like (possibly) moving to Puerto Rico, or buying and holding in order to take advantage of long-term capital gains.

If you do insist on trading, I would again recommend cointracking.info. I've been using it for almost a year now and it has proved invaluable come tax time (not to mention having access to all sorts of other data). You can create a free account, although they'll ask you to upgrade once you hit 200 trades. If you're planning on buying an account, PM me for a referral code and I'll walk you through a couple of tips/tricks/things to be aware of as you use the software.

Happy trading fellas!
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#50

Mini data sheet on tax implications for cryptocurrency trading in the United States

Quote: (04-02-2018 01:57 PM)Isaac Jordan Wrote:  

Quick update: unfortunately the new 2018 tax bill explicitly limits 1031 exchanges to real estate transactions, meaning all crypto-to-crypto trades from Jan 1, 2018 going forward will be considered taxable events.

Crypto-to-crypto trades have effectively always been taxable events. As Plus Oultre pointed out, it is highly unlikely that crypto-to-crypto trades would ever qualify for 1031 treatment. It's wishful thinking. If someone made serious money in crypto and tries this, he is basically sending an invitation to the IRS to come fuck him up. The IRS will wait multiple years to retroactively audit tax returns, so as to maximize penalties and interest.

Quote:Quote:

If you do insist on trading, I would again recommend cointracking.info. I've been using it for almost a year now and it has proved invaluable come tax time (not to mention having access to all sorts of other data).

I have found cointracking.info useful as a tool to aggregate and normalize trades from multiple exchanges. But their methodology for calculating realized gains and taxes on crypto-to-crypto trades is flawed. Bitcoin.tax appears to do the calculations correctly. I can explain further if desired, but I don't want to derail the thread.
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