A Kind Weekly Reminder regarding Like-Kind Exchanges
This is my weekly reminder to try to cut through the noise and bring to the forefront the truth regarding like kind exchanges, for rules in effect for calendar year 2017 (prior to tax reform).
General
Starting in 2018, like-kind exchanges only apply to real property, but many seem to be backwards tracing this truth to conclude incorrectly it is ok to take like-kind exchange in 2017 in every crypto-for-crypto swap situation. The truth is, many (if not the majority) of crypto for crypto exchanges were most likely always taxable, this isn't changed by tax reform. Meaning the position that such exchanges could qualify for like-kind exchange is aggressive. To summarize:
Like-kind exchanges require property to actually be like-kind, i.e. having the same underlying nature or character. For example, the IRS concluded that the exchange of collectible gold coins and standard gold coins are not like-kind, even if made of the same underlying metal because the investment is of a different nature (investing in collectible rarity versus melt value). Further, the IRS concluded that gold and silver are not like-kind because their practical uses have a significant difference.
Further, any valid like kind exchange positions must be reported to the IRS with the tax return filing. IRS links below for convenience:
https://www.irs.gov/pub/irs-pdf/f8824.pdf
https://www.irs.gov/instructions/i8824Cryptocurrency treated as inventory is not qualified for a like kind exchange.
Crypto treated as a security (certain ICO tokens as determined by the SEC) is not qualified for like-kind exchange
Crypto used entirely for personal transactions is generally not valid like-kind exchange, as an investment/business use is required.
Takeaway
As always, consult a tax advisor for personal tax advice. But certainly don't rely on the media or social media alone to come to your tax conclusions, you could be led down a rabbit hole.
Detailed Version
https://steemit.com/bitcoin/@cryptotax/most-common-wrong-answer-for-u-s-crypto-investors-2017-tax-season-like-kind-exchanges
Revenue Ruling Analysis for the Tax Geeks
https://steemit.com/money/@cryptotax/cryptocurrency-like-kind-exchanges-what-can-we-learn-from-gold
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Picture credit
https://pixabay.com/en/users/geralt-9301/
Good update.
Cryptos and taxes are tricky business. A lot of people are going to get their tax filings wrong (Or fail to file their crypto profits altogether) and are going to run into trouble down the road.
A big part of the problem is that tax systems are somewhat convoluted. If a crypto is converted to another crypto, the average investor is not going to think of filing a tax return for the income, because from their perspective they haven't actually made any profit yet. The profit comes at cash-out time when the conversion back to USD is made.
Sadly this isn't how tax agencies view it.
You've nailed it. The average investor might not realize the implications of crypto for crypto swaps. On the other hand, maybe they have heard of like kind exchanges and think they are safe for 2017, however they may have a misunderstanding of like kind exchanges without fully understanding the requirements to successfully execute on it. That is what drives me to spread the awareness.
I'm still just trying to make sense of all of this and do things correctly. Do you have a guide out there for figuring 2017 crypto taxes? I Have a tax preparer but I'm afraid she'll have no idea about the crypto part of my return...
As a matter of fact, I have been writing an e-book, open source on Steemit and updating the table of contents every couple months with a fresh re-post to include recent articles. There are a few basic examples, as well as examples specific to Steemit authors, and miner. See link below (scroll to bottom for the table of contents). The examples are generally basic and look at one or a few transactions in isolation.
https://steemit.com/money/@cryptotax/crypto-tax-series-e-book-2017-edition-u-s
Obligatory Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
@OriginalWorks
This post has received a 3.07 % upvote from @booster thanks to: @cryptotax.
This post has received a 4.38 % upvote from @boomerang thanks to: @cryptotax
You got a 2.24% upvote from @postpromoter courtesy of @cryptotax! Want to promote your posts too? Check out the Steem Bot Tracker website for more info. If you would like to support development of @postpromoter and the bot tracker please vote for @yabapmatt for witness!
Hi @cryptotax. I've read all your 2017 e-book and very much appreciate it. I don't quite understand why upvotes (i.e., their value) are not gifts. I can understand that curation rewards are earnings, because they are in exchange for the curation services. We are helping Steemit Inc. distribute the reward pool.
But your Uber example for our post and comment rewards doesn't necessarily hold, in my view. When I take Uber, I am the only one receiving those services from the driver. Their earnings depend on my receiving those services. But with our posts, anyone can get the services provided by them, without having to pay anything. That would be like anyone being able to join my Uber ride -- hundreds of people! And, many votes, especially autovotes, are given without the person even reading the post. That would be like someone giving the Uber driver money, without taking the ride.
I have posts with hundreds of upvotes and hardly any rewards. And I have posts with high rewards and hardly any votes at the time of payout. Then, those posts continue to be seen by people - not necessarily even on Steemit. So the relationship is much less 1-to-1 than the Uber example.
I see a difference in different types of YouTube income, too. On YouTube, my income depends on the views and clicks on ads, because it is advertising that's linked to my videos. But with SuperChat, people can give us money -- not for the services they are receiving in that video, but to express appreciation for our channel as a whole. YouTube gets a cut of those donations, for the service of providing the video platform. But that's different than an expression of appreciation to the video creator, it seems to me.
Anyway, thanks for all your writing to help us all figure out the tax implications of what we are doing here!
This is a great question. My viewpoint on this matter probably warrants a separate post that goes into more detail, thanks for the idea. I have considered this viewpoint in the past, but there are so many different angles that make this income taxable in my point of view, so it brings me back to the "services" taxation under code section 83:
Thanks again for the continued great curation, it really furthers the discussion. I might borrow this response and make a separate post at some point to throw in a more technical analysis.
Obligatory Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader.
Thanks for such a detailed reply! It is certainly complex, with a lot of considerations. I don't mind paying taxes so much. But I like simplicity, too. And all these new ways of getting income are not simple. Especially as people get to know each other and become friends -- so that upvotes may become acts of friendship than a fee for service. And we've got some crazy example like Virginia's Gov. Bob McDonnell and his court cases to show us plebes how all that works, lol.
Just for reference, people can set Patreon up to support a person per unit of production (like $3/video). But they can also support a person per month. That seems more like a straight donation.
Thanks again for all your help. It's certainly helped me start keeping better records!