How it works
Section 1031 lets taxpayers defer gain when exchanging certain property for similar property. Before 2018 some investors argued that swapping one cryptocurrency for another qualified. The 2017 tax law limited Section 1031 to real estate, and the IRS has stated in guidance and litigation that pre-2018 crypto swaps never qualified either.
Why it matters
Every crypto-to-crypto trade is a taxable sale of the coin you gave up, measured at fair market value at that moment, even though no dollars changed hands. Returns that treated swaps as tax-free exchanges are the source of many amended returns and audits.
Example
You trade 1 ETH (basis 1,500 dollars, worth 3,000 dollars) for 0.05 BTC. You have a 1,500 dollar gain on the ETH, and your basis in the BTC is 3,000 dollars.
Related: taxable event. Read more: IRS says like-kind never applied to crypto.
