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IRS Says That Like-Kind Exchanges Were Never Allowed for Bitcoin, Ether, and Litecoin

Shehan Chandrasekera, CPA

Jun 18, 2021 • 3 MIN READ

Tax law prior to January 1, 2018 allowed taxpayers to defer capital gains tax when one type of property was exchanged for a similar type of property (also known as a Like-Kind Exchanges). Some cryptocurrency holders attempted to apply like-kind exchange treatment to crypto-to-crypto trades in 2017 and earlier in an effort to delay capital gains tax. A new IRS memorandum issued on June 18, 2021 reaffirms that crypto-to-crypto trades between bitcoin, ether, and litecoin are not eligible for like-kind of exchange treatment.

Like-Kind Exchanges & Cryptocurrency Taxes

In 2014 and 2019, the IRS states that crypto-to-crypto trades are taxable.

IRS Notice 2014-21 issued in 2014 (Q6)
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes.

FAQs issued in 2019 (Q16)
“If you exchange virtual currency held as a capital asset for other property, including for goods or for another virtual currency, you will recognize a capital gain or loss”

Tax law takes priority over tax notices like 2014-21 and FAQs published on the IRS website. Therefore some taking aggressive tax positions still argued that crypto-to-crypto transactions occurred before 2018 should receive the like-kind exchange treatment based on §1031 of the US tax code. Taxpayers who took this position should have filed IRS Form 8824 (Like-Kind Exchanges) to report crypto-to-crypto trades and defer capital gains for each trade they made.

The Tax Cuts and Jobs Act (TCJA) limited like-kind exchange treatment to only physical real estate effective January 1, 2018. Therefore, the applicability of like-kind exchange treatment for cryptocurrency was never in contention starting in 2018 and beyond.

IRS Chief Counsel Memorandum

The IRS Memorandum issued on June 18, 2021, explicitly mentions that exchanges between bitcoin, litecoin, and ether prior to January 1, 2018 are not eligible for the like-kind exchange treatment. This is because these coins are not like-kind when it comes to the overall design, intended use, actual use, nature and character. The IRS memo further cites an example of how taxpayers cannot apply like-kind treatment for the exchange of gold to silver as like-kind treatment because they have separate uses as an investment and as a commodity respectively.

It also says that the advice given here is “limited to the exchanges involving Bitcoin, Ether, or Litecoin. This chief counsel advice does not address any other cryptocurrencies, or any other analyses not discussed in this advice. Accordingly, no inferences should be made based on this chief counsel advice that are not explicitly set forth in this advice.”

That said, it is likely that the guidance from this memorandum may be reasonably extrapolated to other cryptocurrencies and that almost all crypto-to-crypto trades would be considered taxable events and not eligible for like-kind exchange treatment at any time in history.

If you applied the like-kind exchange treatment for crypto-to-crypto trades before 2018, it is recommended to talk to a qualified tax adviser and weigh your options.

If you have any questions or comments about crypto taxes let us know on Twitter @CoinTracker.


CoinTracker integrates with 300+ cryptocurrency exchanges, 8,000+ blockchains, and makes bitcoin tax calculations and portfolio tracking simple.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

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