Swapper is an automated blockchain based service for performing 1031 tax-deferred exchanges of cryptocurrencies, thus deferring the immediate tax liability that is created when exchanging one asset to another like-kind asset. (Yes there is indeed a tax liability created at that juncture)
Why have I never heard of the 1031 exchange before?
Because the announcement by the IRS to consider cryptocurrencies “property” and not “currency” is relatively new. When this announcement was made, it categorized cryptocurrencies in the same asset class as real estate and not the same category as monies which, despite what some may think, is a good thing and not a bad thing. A.) if you want to use cryptocurrencies as money than use them, you don’t need someone to tell you what you can and can’t use as an exchange of value B.) this opens the 1031 loophole which is a very common tool used by large scale or small scale real estate investors to take the gains and reinvest 100% back into a new like-kind investment such as another house perhaps.
If this technique isn’t used, then the seller of the property owes capital gains tax at the time of the sale. Another point we would like to drive home is that with all the value created by the rise in cryptocurrency this year, along with the recent IRS crackdown, analysts are predicting a record high number of audits in 2018. If you think the IRS isn’t keeping tabs of users, just Google “Coinbase and IRS” together and look at how many search results come up of the increasing shakedown of bitcoin users and traders.
Still need a picture of how valuable this is?
The concept is simple. Buy an asset, it increases in value, sell the asset, hold profits in escrow, re-invest the profits in a “like-kind” asset within a specific time frame, defer paying taxes. Repeat, Repeat, Repeat and build wealth. An example will make this clear:
Alice buys 1 Bitcoin on 1-1-2015 for $200.00. Bitcoin doing what Bitcoin does, increased in value to $400.00 on 1-2-2016. Alice wants to sell her Bitcoin. Alice is a top income earner and calculates that she is subject to 35% capital gains tax rate on her profit of $200.00, or $70.00.
Scenario 1: Alice sells her Bitcoin on 1-2-2016 for $400.00 pays $70.00 to the IRS. This leaves Alice with $330.00. On 2-2-2016 the price of Bitcoin crashes back to $200.00 and Alice wants to re-invest. She logs into Coinbase and makes the purchase and receives 1.65 Bitcoins in her wallet.
Scenario 2: Alice decides to sell her Bitcoin on 1-2-2016 for $400.00 and chooses to defer taxes on her gains and engages Swapper to be her qualified intermediary – to facilitate the transaction. Alice/Swapper sells her Bitcoin for $400.00 with the full $400.00 credited to her escrow account on Swapper. On 2-2-2016 the price of Bitcoin crashes back to $200.00 and Alice wants to re-invest. She logs into Swapper and makes the purchase and receives 2 Bitcoins in her wallet.
The power of the Swap is quite clear, 2 Bitcoins vs. 1.65.
Why does 1031 exist?
1031 exchanging was created to encourage reinvestment by people and as a tool to help expand the economy on a micro and macro level.
Who needs to file form 1031 and when?
Anyone who understands the value in preserving and extending wealth. Mostly people who can create a surplus through debt (leverage). Currently, they must also be a US citizen and have an eligible taxable event.
Now imagine having the power or option of having this done automatically through a smart-contract everytime you buy or sell on your exchange of choice. The value proposition is enormous.
What about people who aren’t US citizens?
With so many countries and different tax regulations pertaining to its citizens, we will in the coming months or years look for similar and eligible countries that we can integrate our technology into. At the time, we will launch only for people subject to US tax liability.
How can I learn more?
Go to https://Swapper.io and signup for updates and to participate in the ICO happening in October 2017. Swapper is currently only accepting applicants to participate in the ICO for the next 2 weeks so check it out and signup now.