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irc section 1031 cryptocurrency

certain U.S. federal income tax consequences of crypto- currency transactions. exchanges” under section of the Code. In a like-. What Cryptocurrency Transactions Can Be Taxed? · IRC Section , known as the like-kind exchange rules, used to apply to real and personal. The world of cryptocurrency transactions was changed dramatically at the end under IRC Section [also known as “ Transactions] EXCEPT for real. CRYPTO 2022 SPRINGER

Legal Analysis of Legal Memorandum Section a 1 provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment solely for property of like-kind to be held either for productive use in a trade or business or for investment. Prior to , section also applied to certain exchanges of personal property including intangible property.

One kind or class of property may not be exchanged for property of a different kind or class. The Service has long been restrictive about the types of property that can be treated as like-kind. In Rev. The Legal Memorandum relied on the fact that in and , Bitcoin and Ether held a special position within the cryptocurrency market because the vast majority of cryptocurrency-to-fiat trading pairs offered by cryptocurrency exchanges had either Bitcoin or Ether as part of the pair.

In other words, an investor wanting to acquire a cryptocurrency other than Bitcoin or Ether, such as Litecoin, would generally need to acquire either Bitcoin or Ether first. Unlike other cryptocurrencies, Bitcoin and Ether acted as an on and off-ramp for investments and transactions in other cryptocurrencies. Because of this difference, Bitcoin and Ether each differed in both nature and character from Litecoin. The Treasury regulations under section explicitly state that city real estate is of like-kind with a ranch or farm and improved real estate is of like-kind with unimproved real estate.

The gain may be taxable in the current year, while any losses the taxpayer suffered would be considered under separate tax code sections. Gain is deferred, but not forgiven, in a like-kind exchange. The taxpayer must calculate and keep track of his or her basis in the new property acquired in the exchange.

This transfer of basis from the relinquished to the replacement property preserves the deferred gain for later recognition. A collateral affect is that the resulting depreciable basis is generally lower than what would otherwise be available if the replacement property were acquired in a taxable transaction. When the replacement property is ultimately sold not as part of another exchange , the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.

The taxpayer must report an exchange to the IRS on Form , Like-Kind Exchanges, and file it with his or her tax return for the year in which the exchange occurred. Form asks for: Descriptions of the properties exchanged. Dates that properties were identified and transferred.

Any relationship between the parties to the exchange. Value of the like-kind and other property received. Gain or loss on sale of other non-like-kind property given up. Cash received or paid; liabilities relieved or assumed. Adjusted basis of like-kind property given up; realized gain. Taxpayers who do not specifically follow the rules for like-kind exchanges may be held liable for taxes, penalties, and interest on their transactions. Absent from this list is cryptocurrency, or virtual currency.

However, in , the IRS decided to classify cryptocurrency as property [10]. In the notice, the agency specifically mentions that cryptocurrency is not a currency. For instance, one Bitcoin that is exchanged for one Ethereum, may not be considered like-kind in the eyes of the IRS. However, when you discuss the definition of like-kind property, the matter becomes fuzzier. Like-kind property is property of the same nature, character or class.

Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States.

Also, improvements that are conveyed without land are not of like kind to land. Although there is nothing directly opposing it, there is also nothing directly supporting it. This denial would then set the up the transaction to be denied.

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