What is like-kind exchange?

A tax provision allowing gain to be deferred when one property is swapped for similar property rather than sold for cash.

Some taxpayers argued crypto-to-crypto trades qualified before 2018. The Tax Cuts and Jobs Act limited the provision to real property for exchanges after 2017, and the United States Internal Revenue Service concluded in Chief Counsel Advice 202124008 that pre-2018 exchanges of certain cryptocurrencies did not qualify either.

Treating a token swap as non-taxable on this basis is not supportable in the United States. The term still circulates in older forum posts and in software marketed years ago, which is why it is worth knowing what it was and why it does not apply.

How it works

The provision sits in Section 1031 of the Internal Revenue Code. Historically it allowed a taxpayer who exchanged business or investment property for property of a like kind to defer the gain, rolling the old basis into the new asset rather than recognizing a taxable gain on the swap. It never eliminated tax. It moved the calculation to a later disposal.

Two developments closed the door for crypto.

First, the Tax Cuts and Jobs Act of 2017 amended Section 1031 to apply only to exchanges of real property, effective for exchanges completed after 31 December 2017. Personal property of every kind, digital assets included, fell out of scope from that date.

Second, for the years before that amendment, the Internal Revenue Service addressed the argument directly. Chief Counsel Advice 202124008 concluded that exchanges of certain cryptocurrencies did not qualify as like-kind exchanges even under the pre-2018 rules, reasoning about the differing roles the assets played.

What remains is the baseline treatment. The Internal Revenue Service treats virtual currency as property, stated in Notice 2014-21, so exchanging one token for another is a disposal of the first at its fair market value, and gain or loss is recognized then. Receiving no cash does not change that.

Example

Illustrative arithmetic. You bought 1 ETH for $1,500. Later, with ETH at $3,000, you swap it for SOL. No dollars pass through your bank account and nothing is withdrawn.

You have nonetheless disposed of ETH for $3,000 of value, so you recognize a $1,500 gain in that year. Your basis in the SOL received is $3,000, the value at acquisition. If SOL then falls to $2,000 and you still hold it at year end, you owe tax on the $1,500 ETH gain and have an unrealized $1,000 loss on the SOL that does nothing for you until you dispose of it. That gap between a tax bill and available cash is the practical hazard.

Why it matters when you buy

Every trade in a chain of trades is a separate calculation in jurisdictions that treat crypto as property, so the number of swaps you make affects your record-keeping more than the amounts do. The tax section shows how different countries treat holding periods and disposals, and the tax basics guide covers what counts as a disposal. This is not tax advice, and rules differ by country.

Related terms

• taxable event: what triggers a calculation
• capital gains: how a recognized gain is taxed
• cost basis: the figure a gain is measured against
• wash sale rule: a different limit on realizing losses
• tax lot: one purchase tracked as a unit
• form 8949: where United States disposals are reported

Questions

Can I defer tax by swapping instead of selling?

Not in the United States. The provision applies only to real property for exchanges after 2017, and the Internal Revenue Service concluded it did not cover the crypto swaps at issue before then either.

Does this apply outside the United States?

No. It is a United States provision. Other countries have their own rules, and some treat certain crypto-to-crypto swaps differently, so check your own jurisdiction.

What if my software used this method in an old return?

That is a question for a tax professional, since amending a prior return and any interest or penalty exposure depend on the specific years and amounts involved.