by Mike Colpitts 
Selling Bitcoin and using the proceeds to buy real estate in Florida involves tax considerations. Federal taxes are due on the sale of crypto currency profits since they are not treated as real estate but as personal property. Not paying taxes on profits made on crypto might be crypto news.
One strategy to defer taxes on the sale of real estate assets is doing a Section 1031 tax deferred exchange. However, it’s important to understand that the Tax Cuts and Jobs Act (TCJA) of 2017 has limited the applicability of this strategy, particularly concerning cryptocurrency.
Big Crypto Tax Lie
Section 1031 of the Internal Revenue Service code allows taxpayers to defer paying capital gains taxes on a real estate investment when it is sold. The code requires another similar asset, namely real estate to be purchased with the profit gained from the sale.
The provision was originally designed to facilitate the exchange of real property held for investment or used in a trade or business, according to the Hathway and Kunz Wyoming law firm.
Before the TCJA, Section 1031 applied to a broad range of property types, including real estate and certain personal property. However, the TCJA, effective January 1, 2018, limited Section 1031 exchanges to real property only, excluding personal property like cryptocurrencies. It’s when the IRS first made crypto news.
IRS Guidance on Crypto News or Tax
The IRS has clarified its position. In IRS Legal Memorandum 202124008, issued on June 18, 2021, the IRS concluded that certain cryptocurrencies cannot qualify as tax-deferred like-kind exchanges under Section 1031 as it existed prior to its amendment in 2017.
The memorandum made crypto news when it specifically addressed the exchange of Bitcoin for Ether and other similar transactions, affirming that such exchanges are taxable events. The IRS’s reasoning is based on the fact that crypto is considered a personal form of property, and exchanges between them do not meet the “like-kind” requirement.
Tax Implications of Selling Bitcoin
When you sell Bitcoin, the transaction is considered a taxable event by the IRS. The capital gain or loss is determined by the difference between the sale price and your adjusted basis in the Bitcoin. If the Bitcoin was held for more than one year, the gain is typically subject to long-term capital gains taxes, which are lower than short-term rates.
It’s important to clarify that even if you plan to reinvest the proceeds into real estate, the sale of crypto does not qualify for a tax deferral under Section 1031 due to the restrictions imposed by the TCJA. Consequently, any capital gains tax liability incurred from the sale of Bitcoin must be addressed in the year the sale occurs.
Purchasing Real Estate in Florida
Once the Bitcoin is sold and the capital gains tax is paid so you stay out of crypto news tax issues, you can use the remaining funds to purchase real estate in Florida. Florida is known for its favorable tax environment, particularly its lack of a state income tax, which is advantageous for investors.
However, it’s essential to consider other costs associated with purchasing real estate, such as property taxes, insurance, and maintenance. Florida’s property tax rates are relatively moderate compared to other states, but they vary significantly depending on the county. Lee county, where Fort Myers is located has comparatively modest tax rates.
Before proceeding with a real estate purchase, it’s advisable to consult a tax professional or financial advisor to understand the full scope of tax obligations and financial considerations involved.