Bernstein analysts Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia said in a memo to clients on Monday (July 29th), the United States will lead the world in Bitcoin and cryptocurrency; the United States will become a "Bitcoin mining superpower"; to replace Gary Gensler, chairman of the United States Securities and Exchange Commission, who often criticizes the industry, with a new "crypto-friendly" chairman; The United States will not create a central bank digital currency(CBDC), which ensures clear self-custody rights and unmonitored encrypted transactions; The United States will launch a stable coin framework to promote the digital dollar to become a global standard and achieve cross-border payments; The United States will not sell its confiscated assets of about 213,246 bitcoins (worth nearly $15 billion), but will use it as a foundation for the "National Strategic Bitcoin Reserve."
Real estate investors have long known the power of the 1031 exchange as one of the most reliable ways to accumulate wealth and defer taxes. Under IRS Code Section 1031, this tax law allows real estate investors to postpone capital gains taxes on the sale of a property and use the money to buy new investment property. To take advantage of this valuable option, investors must find and purchase similar property within 180 days of the original sale. Therefore, technically, profits are not realized but simply transferred to new property.
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A new way of 1031 exchange?
At the Bitcoin 2024 conference in Nashville, Tennessee, presidential candidate Robert F. Kennedy Jr. announced several executive orders related to Bitcoin that would take effect if he were elected. Kennedy said that one of his first executive actions would be to transfer about 0.2 million bitcoins held by the US government to the US Treasury as strategic assets. He also said he would require the Treasury Department to buy 550 bitcoins a day to establish a reserve of 4 million bitcoins to match the proportion of global gold reserves held by the United States. Kennedy believes that the appreciation of Bitcoin will ultimately make these reserves worth trillions of dollars.
He will also sign an executive order directing the IRS to designate transactions between Bitcoin and the US dollar as non-reportable. This means that Bitcoin purchases will be essentially tax-free. By signing an executive order designating Bitcoin as a qualified asset for 1031 exchange, he will allow real estate investors to convert real estate into digital currency without tax consequences.
President Trump has also stated that he will create a national Bitcoin reserve. He said, "If cryptocurrencies are going to define the future, I want them to be mined, coined and produced in the United States." He also said he would fire Gary Gensler, chairman of the Securities and Exchange Commission, and appoint a crypto advisor to develop new regulatory guidance. He likened cryptocurrencies to the steel industry and believes it is still in its early stages.
Trump also talked about the high power consumption of Bitcoin. He said he would exempt Bitcoin mining from electricity-use regulations and build new power plants. He suggested using fossil fuels and nuclear energy, but in an eco-friendly way. He said this was necessary for Bitcoin and AI's energy needs.
The Biden administration has proposed to limit 1031 exchange plans and set the deferred amount limit per taxpayer at $0.5 million. Similar proposals have been made before but have always been rejected. 1031 exchanges remain a valuable tool for real estate investors and seem unlikely to disappear completely. Whether it will become a way to enter Bitcoin is another matter.
Tips
The tax code's Section 1031 exchange rule allows investors to "defer" paying capital gains taxes on investment properties by replacing it with another property of "similar kind," within 180 days of the sale. 1031 exchanges apply only to investment or business properties of a similar kind and do not apply to personal residences. The replacement property must have a higher or equal value, otherwise the tax deferral may not be 100%.
1031 exchange is a tax-deferred law for investment property, also known as a like-kind exchange. If the exchanged property is for commercial use or investment, and the investor puts the replacement profit back into commercial use, the capital gain on the assets can be transferred into the new property without immediately paying the tax. So, 1031 rule is a tax deferral rather than tax exemption. But in other words, you can exchange properties for your entire life without paying taxes, which is the key to rolling your real estate assets.
Real estate investors have long known the power of the 1031 exchange as one of the most reliable ways to accumulate wealth and defer taxes.