1031 Exchange: Risky Business
In the crypto world, a popular pre-2018 tax deferment strategy involved classifying ICO investments as a 1031 exchange. An investor would put cryptocurrency into an ICO and hold it for 366 days and then file taxes as if holding a home for a year and a day. However, the 2018 tax bill specifically forbids this practice. That means that claiming this practice in 2017, which was never explicitly allowed, would be a risky and aggressive practice. A CPA would likely be pretty nervous about this tax treatment – so you should be too.
While many in the corporate world were ecstatic when the most recent tax bill was approved in Congress, participants in the Crypto world were not so pleased. At the core of their anger and confusion is a change to the language of Section 1031 of the Federal Tax Code which functions to eliminate the possibility of cryptocurrency trades qualifying as “like-kind” exchanges. 1031 Exchanges are very important in taxes as their proper use can save money that can be then be reinvested. With this tax bill, some leading lawyers like Suzanne Walsh explain that the 1031 Exchange strategy can now truly only be used for real estate.