This is my weekly reminder to try to cut through the noise and bring to the forefront the truth regarding like kind exchanges, for rules in effect for calendar year 2017 (prior to tax reform).
General
Starting in 2018, like-kind exchanges only apply to real property, but many seem to be backwards tracing this truth to conclude incorrectly it is ok to take like-kind exchange in 2017 in every crypto-for-crypto swap situation. The truth is, many (if not the majority) of crypto for crypto exchanges were most likely always taxable, this isn't changed by tax reform. Meaning the position that such exchanges could qualify for like-kind exchange is aggressive. To summarize:
Like-kind exchanges require property to actually be like-kind, i.e. having the same underlying nature or character. For example, the IRS concluded that the exchange of collectible gold coins and standard gold coins are not like-kind, even if made of the same underlying metal because the investment is of a different nature (investing in collectible rarity versus melt value). Further, the IRS concluded that gold and silver are not like-kind because their practical uses have a significant difference.
Further, any valid like kind exchange positions must be reported to the IRS with the tax return filing. IRS links below for convenience:
https://www.irs.gov/pub/irs-pdf/f8824.pdf
https://www.irs.gov/instructions/i8824
Cryptocurrency treated as inventory is not qualified for a like kind exchange.
Crypto treated as a security (certain ICO tokens as determined by the SEC) is not qualified for like-kind exchange
Crypto used entirely for personal transactions is generally not valid like-kind exchange, as an investment/business use is required.
Takeaway
As always, consult a tax advisor for personal tax advice. But certainly don't rely on the media or social media alone to come to your tax conclusions, you could be led down a rabbit hole.
Detailed Version
https://steemit.com/bitcoin/@cryptotax/most-common-wrong-answer-for-u-s-crypto-investors-2017-tax-season-like-kind-exchanges
Revenue Ruling Analysis for the Tax Geeks
https://steemit.com/money/@cryptotax/cryptocurrency-like-kind-exchanges-what-can-we-learn-from-gold
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Picture credit
https://pixabay.com/en/users/geralt-9301/
