Tax Reform Law Eliminates Crypto Tax Loophole

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This week, the Republican Congress passed a new tax bill. That bill was signed into law by President Donald J. Trump on Sunday. For crypto enthusiasts, the law may represent new challenges, as it reportedly eliminates an exemption that has allowed them to trade one digital currency for another without automatically creating a reportable tax event.

The new law has been the subject of both praise and derision in recent days, as partisans on both sides of the political aisle have continued to repeat their party’s talking points about the potential impact the law could have on American citizens and companies. Despite that intense debate, little attention has been given to how the reform might impact digital currency owners.

According to a report in Fortune, that impact is very real. Under the previous IRS rules, there was an exemption that some traders used to engage in “like kind exchanges” that did not automatically create taxable events. Some digital currency investors have apparently used that exemption to avoid tax obligations when they exchanged digital currencies. The new law more narrowly defines the type of property eligible for the exemption.

Murtha Cullina partner Suzanne Walsh described the changes to Fortune:

“The tax act in Sec. 13303 amends IRC Section 1031 (a)(1) to delete “property” and replace it with “real property” … So, you can see that now I can no longer take the position that my Bitcoin to Litecoin exchange was a like kind one under Sec. 1031, and I have to recognize the gain when I do it.”

Apparently, that new property definition is designed to ensure that the exemption can only be used for real estate swaps. That means that digital currency traders could be creating taxable events every time they trade digital currencies, further complicating many Americans’ tax filing efforts.


Author: Ken Chase

Freelance writer whose interests include topics ranging from technology and finance to politics, fitness, and all things canine. Aspiring polymath, semi-professional skeptic, and passionate advocate for the judicious use of the Oxford comma.

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