Have you heard of like-kind exchanges? If you have, it’s probably because you have read or heard something about them in reference to crypto and taxes. Sadly, I think there are a lot of misconceptions out there around like-kind exchanges.
A lot of people think that they don’t have to report gains and losses in 2017 from their trades because they can take the 1031 like-kind exchange position.
The problem is that you can’t just “take the 1031 position” and not report these trades. If you decide to take this position on your return, you will need to file Form 8824 for EACH trade
Also, you need to be able to prove that two different coins really are “like-kind” property. In order for it to qualify for this treatment, you need to look at the “nature or character of the property”
“The nature or character” is somewhat vague, and sadly we don’t have any specific guidance from the IRS on whether cryptocurrencies are like-kind, so we are forced to determine this on our own and accept the risk that the IRS could disagree with us later.
But just for reference, gold and silver are not considered like-kind, a female cow and a male bull are not considered like-kind, etc.
If you think that your coins are like-kind though, I would recommend getting a letter from a tax attorney stating that they agree with the position, so if the IRS disagrees with you later, you can use the letter to help back you up.
But honestly in the end they could still disagree. And they would have up to six years to disagree with your position and assess interest and penalties.
So in the end, it’s up to you, I just want to make sure you have the information you need before you take this position. If you want more info, check out my site cryptotaxgirl.com!
And just to be clear, this issue is only up for debate in 2017. You cannot take this position in 2018 under the new tax reform!
