US President Donald Trump signed a new tax bill. And this was definitely bad news for crypto investors. Starting January 1, 2018, all cryptocurrency transactions will be subject to tax, including exchanges of one cryptocurrency for another.
Tax reform is one of Trump’s key campaign promises; the debate around the parameters of the law and its consequences for different categories of citizens and for the US economy as a whole continued throughout the year. Previously, the largest tax reform in US history was approved by Congress, the majority in both houses of which belongs to Republicans.
For the world of cryptocurrency, changes that were made to the section of the tax code that concerns exceptions for “miscellaneous exchanges” are of interest. Previously, investors actively used this clause, which allowed them to exchange their assets without creating a tax event. These so-called "1031 exchanges" have long been used by traders to exchange property, such as art or real estate, without having to pay taxes on it.
Up until this point, cryptocurrency trading has generally been in a legal gray area, providing most traders with a loophole to defer taxes on short-term loans. However, the new amendment permanently limits the 1031 exemption to cover real estate transactions only, excluding cryptocurrencies.
Virtually all crypto trades will now be taxed at the time they are executed, ending one of the most lucrative tax loopholes previously available to traders.
This change marks a significant blow to US crypto investors, who have happily avoided taxation by taking advantage of the "exchange law."
Traders are now required will pay taxes once they cashed out into fiat or sold cryptocurrency through an exchange. Of course, this cannot but affect the commission fees charged by US exchanges.
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