Quick answer
Like-kind exchange (Section 1031) no longer applies to crypto — any attempt to use it for pre-2018 crypto swaps faces serious IRS scrutiny.
Tax Filing
United States
Like-Kind Exchange
A former tax deferral mechanism for exchanging similar assets; definitively closed for cryptocurrency after the 2017 Tax Cuts and Jobs Act.
United StatesUnderstanding Like-Kind Exchange on crypto
A like-kind exchange under IRC Section 1031 allows taxpayers to defer capital gains tax when exchanging one property for another of the same kind. Before 2018, some taxpayers argued that crypto-to-crypto swaps qualified as like-kind exchanges, deferring gains on each trade. The Tax Cuts and Jobs Act of 2017 definitively restricted Section 1031 to real property only, effective 1 January 2018. The IRS has since made clear that like-kind exchange treatment does not apply to cryptocurrency trades, and any taxpayer who used this argument for pre-2018 trades may face audit risk.
A like-kind exchange under IRC Section 1031 allows taxpayers to defer capital gains tax when exchanging one property for another of the same kind. Before 2018, some taxpayers argued that crypto-to-crypto swaps qualified as like-kind exchanges, deferring gains on each trade. The Tax Cuts and Jobs Act of 2017 definitively restricted Section 1031 to real property only, effective 1 January 2018. The IRS has since made clear that like-kind exchange treatment does not apply to cryptocurrency trades, and any taxpayer who used this argument for pre-2018 trades may face audit risk.
What this means for your crypto activity
Not available after 2017
Section 1031 cannot be used to defer gains on any crypto-to-crypto swap made after 31 December 2017.
Review pre-2018 positions
Taxpayers who applied like-kind exchange treatment to crypto trades before 2018 should review their position with a tax advisor.
IRS audit risk
The IRS has pursued audits of taxpayers who claimed this treatment in 2017 and earlier.
Pre-2018 legal uncertainty
For pre-2018 crypto trades, the like-kind argument was legally contested but not definitively rejected at the time.
No US deferral alternative
There is no equivalent mechanism available to defer crypto gains in the US.
- Section 1031 cannot be used to defer gains on any crypto-to-crypto swap made after 31 December 2017.
- Taxpayers who applied like-kind exchange treatment to crypto trades before 2018 should review their position with a tax advisor.
- The IRS has pursued audits of taxpayers who claimed this treatment in 2017 and earlier.
- For pre-2018 crypto trades, the like-kind argument was legally contested but not definitively rejected at the time.
- There is no equivalent mechanism available to defer crypto gains in the US.
Seeing it in action
Example scenario
In 2017, James swapped $50,000 of BTC for ETH and claimed like-kind exchange treatment under Section 1031, deferring his gain. Post-TCJA, the IRS examines this treatment for pre-2018 crypto trades. James's tax advisor recommends amending the return to report the gain and paying the deferred tax to avoid penalties, as the IRS position on pre-2018 crypto like-kind exchanges is increasingly hostile.
How this works across jurisdictions
- United States
Section 1031 like-kind exchange is restricted strictly to real property from 1 January 2018 by the Tax Cuts and Jobs Act; crypto-to-crypto swaps are fully taxable disposal events. Furthermore, the IRS Office of Chief Counsel released a definitive legal memorandum (AM 2021-005) closing historical loopholes by concluding that Bitcoin, Ethereum, and Litecoin are fundamentally different in character and do not qualify as "like-kind" property even for tax periods prior to 2018.
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