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I saw this question.

Let's suppose one sells an asset for a $200,000 profit after holding it for 10 year but then immediately sinks the entire sale price into another asset. Is one still expected to pay the capital gains tax? What cash is one expected to pay the taxes from?

How do tax liabilities work in this scenario?
Capital gains tax when proceeds were immediately used for another investment

And I was wondering if the answer changes if the assest is exchanged for bitcoin instead of money. The asset was never converted into the currency of any country, but rather just exchanged for a new asset.

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    Based on the answers in the linked question, you may want to explain why you believe it would be any different regardless of what was purchased after the $200K profit sale. Note that the IRS has a FAQ section on virtual currencies Dec 23 '20 at 8:04
  • @MorrisonChang - why should the OP have to explain that? The tax code is incredibly complex, and indeed there are a number of weird exceptions to that principle. It's a completely valid (if easily answered) question.
    – Fattie
    Dec 23 '20 at 13:00
  • @Fattie OP links to a question which has the answer so its possible that the OP didn't actually read everything in the link or has an assumption about the original asset sale which OP should expand upon (i.e. belief in 1031 type exchange or confusion with real estate) to improve OP's question. Dec 23 '20 at 16:39
  • hi Morrison - the linked QA says nothing at all about bitcoin?? As I mentioned, there are indeed a number of weird exceptions - it's reasonable to ask if "bitcoin is one of them"
    – Fattie
    Dec 23 '20 at 17:08
  • The linked answer says nothing about bitcoin because bitcoin is IRRELEVANT. You realize gain by selling, you pay taxes. What you do THEN with your funds is irrelevant, with some VERY limited exception (rolling forward investment property). This is clear in the answers linked.
    – TomTom
    Dec 24 '20 at 10:27
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Let us answer your actual question very simply:

I was wondering if the answer changes if the assest is exchanged for bitcoin

No.

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When you sell the asset for 200K profit: assume there will be a tax record. That is true if you are selling a house, or a bunch of shares of an individual stock or a mutual fund or an ETF. Unless the entire transaction is done out of view of the normal channels there will be a tax form submitted to the IRS

Of course even if the tax form wasn't triggered, that wouldn't change the the obligation to report the transaction and then calculate the amount of tax owed.

In your question you are hoping that the act of transforming the proceeds into a virtual currency can delay or even avoid the capital gains. But that would require that the basis of the virtual currency purchase not be reported as the value of the virtual currency at the moment of transfer, but it would take into account the deferred capital gains. If that option existed, there would be a tax form related to that sort of thing.

The US tax law does allow this sort of thing when exchanging like kind property called a 1031 exchange. But that has its own regulations and paperwork, and also requires that the properties be similar real properties,

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