Do altcoin trades count as like-kind exchanges? (Deferred capital gains tax)
"In June 2016 the American Institute of CPAs sent a letter to the IRS requesting guidance on this question.   Quoting from section 4 of this letter, which is available at https://www.aicpa.org/advocacy/tax/downloadabledocuments/aicpa-comment-letter-on-notice-2014-21-virtual-currency-6-10-16.pdf If the IRS believes any property transaction rules should apply differently to virtual currency than to other types of property, taxpayers will need additional guidance in order to properly distinguish the rules and regulations. Section 4, Q&A-1 of Notice 2014-21 states that “general tax principles applicable to property transactions apply to transactions using virtual currency,” which is guidance that is generally helpful in determining the tax consequences of most virtual currency transactions. However, if there are particular factors that distinguish one virtual currency as like-kind to another virtual currency for section 1031 purposes, the IRS should clarify these details (e.g., allowing the treatment of virtual currency held for investment or business as like-kind to another virtual currency) in the form of published guidance. Similarly, taxpayers need specific guidance of special rules or statutory interpretations if the IRS determines that the installment method of section 453 is applied differently for virtual currency than for other types of property. So, at the very least, a peer-reviewed committee of CPAs finds like-kind treatment to have possible grounds for allowance.   I would disagree with calling this a ""loophole,"" however (edit: at least from the viewpoint of the taxpayer.)  At a base technological level, a virtual currency-to-virtual currency exchange consists of exchanging knowledge of one sequence of binary digits (private key) for another.  What could be more ""like-kind"" than this?" Just a thought because this is a really good question: Would the buying and selling of blockchain based digital currency,   using other blockchain based digital currencies, be subject to like   kind treatment and exempt from capital gains until exchanged for a   non-blockchain based good or service (or national currency) Suppose someone sells 1 bitcoin to buy 100 monero.  Monero's price and bitcoin's price then change to where the 100 monero are 3 bitcoins.  The person gets their bitcoin back and has 66.67 monero remaining. This scenario could be: Suppose someone sells 1 bitcoin at $1000 to buy 100 monero at $10.  Bitcoin crashes 80% to $200 while monero crashes to only $6 per monero.  $6 times 100 is $600 and if the person gets their bitcoin back (at $200 per bitcoi), they still lost money when measured in US Dollars if they move that bitcoin back to US dollars. In reading the IRS on bitcoin, they only care about the US dollar value of bitcoin or monero and in this example, the US dollar value is less.  The person may have more bitcoins, but they still lost money if they sell. Like-kind of exchanges have a list of requirements. The IRS has not issued formal guidance in the matter. I recommend to be aggressive and claim the exchange, while justifying it with a good analogy to prove good faith (and persuade the IRS official reading it the risk of losing in tax court would be to high). Worst case the IRS will attempt to reject the exchange, at which point you could still pony up to get rid of the problem, interest being the only real risk. For example: Past tax court rulings have stated that collectable gold coins are not like kind to gold bars, and unlike silver coins, but investment grade gold coins are like kind to gold bars. So you could use a justification like this: I hold Bitcoin to be like-kind to Litecoin, because they use the same fundamental technology with just a tweak in the math, as if exchanging different grades of gold bars, which has been approved by tax court ruling #xxxxx. Note that it doesn't matter whether any of this actually makes sense, it just has be reasonable enough for you to believe, and look like it is not worth pursuing to an overworked IRS official glancing at it. I haven't tried this yet, so up to now this is a guess, but it's a good enough guess in my estimation that I will be using it on some rather significant amounts next year.
I would think you need proof that you actually bought it when it was cheaper, but that's a guess. You are supposed to pay the capital gains tax on bitcoin gains, same as if you made money on a stock  https://www.google.com/amp/s/www.forbes.com/sites/greatspeculations/2017/02/21/if-you-traded-bitcoin-you-should-report-capital-gains-to-the-irs/amp/ "You're right.  I did include ""is it reasonable"" in the title.  Therefore that brings in the acceptability of those taxes.  However I am making the case that I would like capital gains to be taxed most similarly to regular income (or at least in a parallel bracket), which is independent of the amount needed to be brought in.  I think parallel brackets would be the most productive since it would encourage people to both produce and invest, because you would get the lowest taxes by maximizing both." 1031 is a section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property - the payment of tax is deferred until property is sold with no re-investment. "As an exercise, I want to give this a shot.  I'm not involved in a firm that cares about liquidity so all this stuff is outside my purview.  As I understand it, it goes something like this: buy side fund puts an order to the market as a whole (all or most possibly exchanges).  HFTs see that order hit the first exchange but have connectivity to exchanges further down the pipe that is faster than the buy side fund.  They immediately send their own order in, which reaches exchanges and executes before the buy side fund's order can.  They immediately put up an ask, and buy side fund's order hits that ask and is filled (I guess I'm assuming the order was a market order from the beginning).  This is in effect the HFT front running the buy side fund.    Is this accurate?  Even if true, whether I have a genuine issue with this... I'm not sure.  Has anyone on the ""pro-HFT"" side written a solid rebuttal to Lewis and Katsuyama that has solid research behind it?" Capital losses do mirror capital gains within their holding periods. An asset or investment this is certainly held for a year into the day or less, and sold at a loss, will create a short-term capital loss. A sale of any asset held for over a year to your day, and sold at a loss, will create a loss that is long-term. When capital gains and losses are reported from the tax return, the taxpayer must first categorize all gains and losses between long and short term, and then aggregate the sum total amounts for every single regarding the four categories. Then the gains that are long-term losses are netted against each other, therefore the same is done for short-term gains and losses. Then your net gain that is long-term loss is netted against the net short-term gain or loss. This final net number is then reported on Form 1040. Example Frank has the following gains and losses from his stock trading for the year: Short-term gains - $6,000 Long-term gains - $4,000 Short-term losses - $2,000 Long-term losses - $5,000 Net short-term gain/loss - $4,000 ST gain ($6,000 ST gain - $2,000 ST loss) Net long-term gain/loss - $1,000 LT loss ($4,000 LT gain - $5,000 LT loss) Final net gain/loss - $3,000 short-term gain ($4,000 ST gain - $1,000 LT loss)   Again, Frank can only deduct $3,000 of final net short- or long-term losses against other types of income for that year and must carry forward any remaining balance. "It sounds like this is an entirely unsettled question, unfortunately.  In the examples you provide, I think it is safe to say that none of those are 'substantially identical'; a small overlap or no overlap certainly should not be considered such by a reasonable interpretation of the rule. This article on Kitces goes into some detail on the topic.  A few specifics. First, Former publication 564 explains: Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund. Of course, what ""ordinarily"" means is unspecified (and this is no longer a current publication, so, who knows). The Kitces article goes on to explain that the IRS hasn't really gone after wash sales for mutual funds: Over the years, the IRS has not pursued wash sale abuses against mutual funds, perhaps because it just wasn’t very feasible to crack down on them, or perhaps because it just wasn’t perceived as that big of an abuse. After all, while the rules might allow you to loss-harvest a particular stock you couldn’t have otherwise, it also limits you from harvesting ANY losses if the overall fund is up in the aggregate, since losses on individual stocks can’t pass through to the mutual fund shareholders. But then goes to explain about ETFs being very different: sell SPY, buy IVV or VTI, and you're basically buying/selling the identical thing (99% or so correlation in stocks owned).   The recommendation by the article is to look at the correlation in owned stocks, and stay away from things over 95%; that seems reasonable in my book as well. Ultimately, there will no doubt be a large number of “grey” and murky situations, but I suspect that until the IRS provides better guidance (or Congress rewrites/updates the wash sale rules altogether!), in the near term the easiest “red flag” warning is simply to look at the correlation between the original investment being loss-harvested, and the replacement security; at correlations above 0.95, and especially at 0.99+, it’s difficult to argue that the securities are not ”substantially identical” to each other in performance. Basically - use common sense, and don't do anything you think would be hard to defend in an audit, but otherwise you should be okay." Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks. "For restricted stock, I think the vesting date meets the requirements of the second wash sale trigger from IRS Pub 550: Wash Sales: Acquire substantially identical stock or securities in a fully taxable trade I base this on these two quotes from IRS Pub 525: Restricted Property: any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. - Until the property becomes substantially vested, it is owned by the person who makes the transfer to you, usually your employer.  So on the vest date: The transfer is taxable Ownership is transferred to you That seems close enough to ""a fully taxable trade"" for me.  Maybe this changes if you pay the tax on the stock on the grant date. See Pub 525: Restricted Property: Choosing to include in income for year of transfer. Obviously, if this is important you should consult your tax advisor.  Technicalities aside, I don't think it passes the sniff test. You're getting salable shares when the restricted stock vests. If you're selling other shares at a loss within 30 days of the vesting date, that smells like a wash sale to me." short answer: no, not to my knowledge  long answer: why do you want to do that? crypto are very volatile and, in my opinion, if you are looking for a speculative exercise, you are better off seeking to understand basic technical analysis and trading stocks based on that "The only ""authoritative document"" issued by the IRS to date relating to Cryptocurrencies is Notice 2014-21. It has this to say as the first Q&A: Q-1: How is virtual currency treated for federal tax purposes?   A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. That is to say, it should be treated as property like any other asset. Basis reporting the same as any other property would apply, as described in IRS documentation like Publication 550, Investment Income and Expenses and Publication 551, Basis of Assets. You should be able to use the same basis tracking method as you would use for any other capital asset like stocks or bonds. Per Publication 550 ""How To Figure Gain or Loss"", You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Gain. If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Loss. If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss.  That is, the assumption with property is that you would be using specific identification. There are specific rules for mutual funds to allow for using average cost or defaulting to FIFO, but for general ""property"", including individual stocks and bonds, there is just Specific Identification or FIFO (and FIFO is just making an assumption about what you're choosing to sell first in the absence of any further information). You don't need to track exactly ""which Bitcoin"" was sold in terms of exactly how the transactions are on the Bitcoin ledger, it's just that you bought x bitcoins on date d, and when you sell a lot of up to x bitcoins you specify in your own records that the sale was of those specific bitcoins that you bought on date d and report it on your tax forms accordingly and keep track of how much of that lot is remaining. It works just like with stocks, where once you buy a share of XYZ Corp on one date and two shares on another date, you don't need to track the movement of stock certificates and ensure that you sell that exact certificate, you just identify which purchase lot is being sold at the time of sale." Sale of a stock creates a capital gain. It can be offset with losses, up to $3000 more than the gains. It can be deferred when held within a retirement account.  When you gift appreciated stock, the basis follows. So when I gifted my daughter's trust shares, there was still tax due upon sale. The kiddy tax helped reduce but not eliminate it. And there was no quotes around ownership. The money is gone, her account is for college.  No 1031 exchange exists for stock. It looks like it has to deal with an expiration of rights as a taxable event. I found this link via google, which states that  Not only does the PSEC shareholder have a TAXABLE EVENT, but he has   TWO taxable events. The net effect of these two taxable events has   DIFFERENT CONSEQUENCES for DIFFERENT SHAREHOLDERS depending upon their   peculiar TAX SITUATIONS. The CORRECT STATEMENT of the tax treatment of unexercised PYLDR rights   is in the N-2 on page 32, which reads in relevant part as follows: “…, if you receive a Subscription Right from PSEC and do not sell or   exercise that right before it expires, you should generally expect to   have (1) taxable dividend income equal to the fair market value (if   any) of the Subscription Right on the date of its distribution by PSEC   to the extent of PSEC’s current and accumulated earnings and profits   and (2) a capital loss upon the expiration of such right in an amount   equal to your adjusted tax basis (if any) in such right (which should   generally equal the fair market value (if any) of the Subscription   Right on the date of its distribution by PSEC).” Please note, for quarterly “estimated taxes” purposes, that the   DIVIDEND taxable events occur “ON THE DATE OF ITS DISTRIBUTION BY PSEC   (my emphasis),” while the CAPITAL LOSS occurs “UPON EXPIRATION OF SUCH   RIGHT” (my emphasis). They do NOT occur on 31 December 2015 or some   other date. However, to my knowledge, neither of the taxable events he mentions would be taxed by 4/15. If you are worried about it, I would recommend seeing a tax professional. Otherwise I'd wait to see the tax forms sent by your brokerage. Questrade is a Canada based broker offering US stock exchange transactions as well. It says this right on their homepage. ETFs are traded like stocks, so the answer is yes.  Why did you think they only offered funds? As long as the tax rate is below 100%, there is still money to make. You pay taxes on your gain, not on your trading volume. Taxed income is still income - many people seem to get that wrong. Different exchanges sometimes offer different order types, and of course have different trading fees.  But once a trade is finished, it should not matter where it was executed.