Bitcoin: Fresh Tax Law Eliminates Loophole, Fortune

Bitcoin has defied financial gravity te 2018 but, ter one respect, it’s just like any other investment: Uncle Sam expects a cut of the profits when you sell it. And embarking te 2018 it will get a little firmer to avoid paying up.

That’s because the major tax reform passed te Congress this week contains a tweak that eliminates an exemption for many “like kleuter exchanges,” which lets people interchange an asset for a similar one without triggering a tax obligation.

Until now, some investors have relied on the law to exchange one digital currency for another without paying taxes. For example, someone who possessed Bitcoin could diversify their holdings into Ethereum or Litecoin, and plausibly tell the IRS it created no tax obligations.

Spil Suzanne Walsh, a playmate at the law rock-hard Murtha Cullina, explained to Fortune, this is no longer the case because of a tweak to definition of property eligible for the exemption:

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

Walsh added that the “in kind” exemption can now only apply to real estate transactions, effectively closing a loophole that has bot open to other sort of property transaction such spil those involving Bitcoin.

Digital currency owners are presently obliged to pay taxes when they exchange it for dollars or physical goods, but the fresh rule now effectively means all crypto transactions are a taxable event.

This doesn’t mean, of course, that everyone will heed the rule, especially spil an IRS investigation exposed that only 802 customers of Coinbase, a popular digital currency exchange, filed a 8949 form related to Bitcoin-related activity ter 2015.

For law-abiding investors, however, the process of reporting digital currency profits—which are taxed spil ordinary income ter the brief term and spil capital gains te the long term—will be arduous since Bitcoin exchanges have yet to provide customers with a 1099 form. Thesis forms, which are used by brokerage firms like Fidelity, provide a summary of investment income and are given both to customers and the IRS.

Meantime, the tax headaches for digital currency investors are only going to increase spil they vereiste figure out how to account for spin-off currencies like Bitcoin Specie, and spil the IRS deploys special software to identify Bitcoin tax cheats. While elected officials like Rep. Jared Polis (D-Co.) proposed an amendment to lighten the reporting requirements for digital currency, the measure did not get included ter the final bill.

Voorzitter Trump is expected to sign the major tax overhaul, which passed both houses of Congress this week, te the next few days.

This is part of Fortune’s fresh initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.

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