Donald Trump Plans To Tax Cryptocurrency Trading

Trump Admin Eyes Bitcoin As Us Federal Reserve Issues Warning
Trump Admin Eyes Bitcoin As Us Federal Reserve Issues Warning

New US Tax Bill To Subject Cryptocurrency Trading to Taxation

President Trump is expected to sign a new tax bill which would subject all US crypto trading deals to capital gains tax.

The newly drafted bill called the Tax Cuts and Jobs Act has recently been approved by both the Senate and House of Representatives and is expected to be signed by United States President Donald Trump. According to the Goodwin Procter LLP attorney, Kelsey Lemaster the new bill defines a cryptocurrency exchange as a taxable event.

Lemaster and several other lawyers have pointed out that once the bill is signed into law, it will not allow the relevant parties that participate in crypto trading to defer the capital gains taxes. The parties would then owe taxes on their cryptocurrencies if it increased in value while in their possession.

Up until now, cryptocurrencies have legally been treated as “like-kind exchanges” in the US. This enabled crypto market participators to defer capital gains taxes as the two items being exchanged were similar. However, the exchange had to be completed within 180 days. According to Lisa Zarlenga, a tax attorney at Steptoe & Johnson LLP, once this practice ceased, all cryptocurrencies would be subject to taxation upon exchanging.

However, currently, the exact nature of the likeness is not clearly defined. The newly drafted bill intends to cease the like-kind practice for the cryptocurrency and make it available exclusively to the domestic real estate industry.

According to regulatory guidelines that were published in 2014 by the US Internal Revenue Service (IRS), a taxpayer will experience either capital loss or gain upon concluding an exchange or sale of cryptocurrencies which serve as a capital asset. This guideline implies that the IRS views cryptocurrencies as being similar in nature to traditional assets such as investment property, stocks, or bonds. This also means, that like traditional assets, cryptocurrencies are subject to capital gains tax.

However, the IRS has failed to state outright whether the exchange of digital assets are eligible for like-kind exchanges or not. Lemaster states that the like-kind system is not always adequate for all cryptocurrencies as many of them vary greatly, as some tokens as purely speculative and others offer utility. The wide scope in available cryptocurrencies makes the like-kind practice somewhat ambiguous.

However, according to current legislation, individuals selling cryptocurrencies that they previously bought via an exchange service for other digital assets would be subject to capital gains tax of up to 37%. This percentage might drop to 23.8% if the individual owned a token for at least 12 months.

Experts believe that Trump is likely to sign the bill into legislation. After signing it in, the bill would become effective as of January 1, 2018.