Biggest Crypto Tax Debate Is Not What You Think: Expert Take
You might think the biggest tax debate about Bitcoin and other cryptocurrencies is about whether you should or shouldn’t report it. Or perhaps about whether the US Internal Revenue Service (IRS) will catch people who don’t report. Perhaps, but there’s not too much debate about those topics these days. Everyone seems to know that you should report, and that the IRS is after taxing cryptocurrencies in a very big way.
The IRS is tracking with software, and the IRS summons of Coinbase is already bearing fruit with files for the IRS to review. In fact, the biggest cryptocurrency tax debate still seems to be about 1031, the tax code provision providing for like-kind exchanges.
Under US tax law, 1031 exchanges can only be of real estate for real estate, starting in 2018. The Trump tax law passed right around Dec. 2017 made it clear that that swaps of one cryptocurrencies for another are not tax free in 2018. But it is surprising how much debate there is about whether this argument can work for 2017 and prior tax years.
If you are about to file your 2017 tax return, should you claim tax-free treatment for past cryptocurrency transactions? If you are cleaning up your past tax reporting before the IRS finds you, you might have the same issue for 2016 too. So, is claiming 1031 treatment for cryptocurrency trades for the past smart or stupid? It turns out to be a nuanced subject, which is one reason it is debated.
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