Wash-Sale
Naturally, advisors are keen to know whether the wash-sale rule applies to crypto, but the IRS has been mum on this. Since the classification of crypto as property would logically limit the rule’s application, the prevailing view goes, crypto lies outside the scope of the rule as it’s currently written.
Like-Kind Exchanges
There has been ambiguity about whether like-kind exchange rules apply to crypto and whether taxpayers can use these rules to avoid immediate recognition of gains. The Tax Cuts and Jobs Act of 2017, which went into effect for the 2018 tax year, indicates that like-kind exchanges under Section 1031 of the U.S. Internal Revenue Code apply only to real property, but it’s unclear whether crypto exchanges executed during or before 2017 qualify; the conservative approach is to assume that they don’t.
Charitable Donations
You can avoid paying taxes on appreciated cryptocurrency by donating it, and more charities have started accepting it. One of these entities is Fidelity Charitable, which uses the vehicle of donor-advised funds.
By not turning your appreciated cryptocurrency into cash before donating it, you avoid tax on gains because you aren’t actually realizing them. You can use the deduction to offset other tax liabilities.
Gifting
Another way to transfer crypto without tax liability is to gift it in amounts below the annual gift tax threshold, but those receiving these gifts don’t get a stepped-up basis as they do with other capital assets. If you bought a Bitcoin in mid-2016 for $500 and gave it to your son in mid-2018, when it was valued at $6,000, your son’s basis is $500, not $6,000.
Digital Tentacles