Last week, U.S. President Donald Trump signed one of the most controversial tax reform bills in U.S. history. Bundled within those rules were cryptocurrency regulations that implement taxation for traders. The new law amends IRC Section 1031 (a)(1) regarding “like kind exchanges,” excluding all cryptocurrencies from a previous legal loophole, Fortune reported.
As Suzanne Walsh, a partner at the Murtha Cullina law firm, explained to Fortune, because of a tweaked definition of “property” cryptocurrency is no longer eligible for the exemption:
“The tax act in Sec. 13303 amends IRC Section 1031 (a)(1) to delete “property” and replace it with “real property” … So, you can see that now I can no longer take the position that my Bitcoin to Litecoin exchange was a like kind one under Sec. 1031, and I have to recognize the gain when I do it,” Walsh said.
Walsh added that the “in kind” exemption can now only apply to real estate transactions, effectively closing a loophole that has been open to other sorts of property transaction such as those involving Bitcoin.
Digital currency owners are currently obliged to pay taxes when they exchange cryptocurrencies for fiat or physical goods, but the new rule now effectively means all crypto transactions are taxable.
This comes after an IRS investigation revealed that only 802 customers of Coinbase, filed an 8949 form related to Bitcoin-related capital gains or losses in 2015.
However, Cryptocurrency exchanges have yet to provide customers with a 1099 form to do so. This could mean that in the near future Coinbase will be forced to not only identify all of its users but to email them 1099 forms at the end of the year for tax collection purposes.
In addition, this may also indicate that cryptocurrency exchanges not based in the U.S. will ban citizens in the United States from trading on their exchanges since the IRS is a U.S. entity.
According to another law firm, Perkins Coie, 62 other countries are also planning regulations for cryptocurrencies. See the full list of countries here.
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