Deferring Tax On Bitcoin or Cryptocurrency

With Brett and Mitch Stephen


“The Deferred Sales Trust is just another one of these tax deferral strategies that has been legal for many, many years, it’s been proven. But the application of it is really where the magic comes in.”– Brett Swarts




You were talking about deferring tax on Bitcoin or Cryptocurrency? I bet there’s a lot of people out in that world that doesn’t know that. There are some possibilities out there. There’s some when people do this, there are some pretty big hits. I mean, some outrageous hits. It’s definitely worth sitting down for an hour and having a conference to talk about how you might save 10s of 1000s, if not hundreds of 1000s if not millions, by adding to your knowledge base. Where do we start with this topic, Brett?


To try to make it really simple for people, as best as we can. The government’s no stranger to tax deferral, and they give us things like the 401k, things like an IRA, things like a 1031 Exchange. These are ways that we as US citizens, as workers, as investors, can defer capital gains tax and potentially even income tax over a period of time. Know that the government wants to do that because they want to incentivize you to save to invest and put money back into the economy to grow jobs, take care of your own retirement, take care of your kid’s college savings. There’s a lot of things that incentivize them to say, we want people to do certain things, and let’s minimize them by not taxing as much. They can’t force you to do things, but they can, they can make it attractive enough for you. The Deferred Sales Trust is just another one of these tax deferral strategies that has been legal for many, many years has been proven. But the application of it is really where the magic comes in and that it works for any Highly Appreciated Asset, Real Estate, Primary Homes, Businesses, Commercial Real Estate, Cryptocurrency, which is really the topic of today’s conversation. For 25 years, it’s really only ever been known for mostly Real Estate and Business Sales, Veterinarians, Dentists, Optometrists, Car Dealerships, Multifamily Properties can work for Stocks & Bonds, it can work for Public Stock, it can work for Private Stock.


A lot of people are thinking about getting out right now. They but they don’t want to take the hit. Because that’s always the most painful part of getting out. But it’s a lot of people think is a good time to get out. So right now get while the getting’s good, we’ve made good money for a long time, things are smelling a little shaky, and a lot of people’s opinion. Maybe this is a good time, to have a good reason. Now you can get out and maybe defer the tax.


We could agree with you more. We like to say it’s somewhere between 30 and 50% of the gain with the depreciation recapture. Depending on the asset you hold, and the state that you live in, and part of Biden’s proposed tax plan, he’s taking potentially 20% Federal to as high as 25, or 26, or 28%. Federal. Then it’s gonna be like 30, 35, or 38 to 58%., depending on the state, you live in the depreciation recapture. We like to say it’s no longer about cash flow, although it’s always cash flow. I know there’s cash flow in 1000 houses, but it’s really more and more about tax flow. How and when are you going to receive those funds? How and how much tax you’re going to be paying? Why? Well, the government guess what has been spending a lot of money last 10 years, 20 years, 40 years, they keep spending. Especially last 10 years, no matter what side of the aisle you vote for, they’re spending, and that means a couple of things. They’re gonna raise taxes, they’re also printing a lot of money, which means the next thing, potentially inflation. We’re seeing inflation, potentially, it’s happening. We think now more than ever is a great time to sell high and diversify. Get some liquidity, get some tax deferral. Get out of debt. We just did a deal for a client in Alabama, he sold a $2.6 million business deferred all of the tax. He got a really high multiple for the sale. He’s building tax-deferred with the trust 70 multifamily units. That’s pretty cool. I’s kind of like 1031 out of a business into building.


But they don’t offer 1031 for business. They don’t offer one for a lot of things. They don’t offer 1031 for a million-dollar commission you’re getting, because you sold 10 billion rubber gloves in the middle of the COVID thing. They don’t offer any exchanges for that. Here’s how you might do it.


It all depends on the fact pattern and the way you structure the deal, especially when it comes to commissions and stuff. So really what we’re staying in is a highly appreciated asset. I’ll give you actually some three live deals I just closed, and this is the exciting part about this episode and why you want to want to continue to listen here because for 25 years it’s been all the businesses and the real estate sales including luxury primary homes which don’t qualify for 1031, including businesses who don’t qualify for 1031. By the way, this is not to be confused with the Delaware Statutory Trust that’s just another form of 1031. We call it the Hollywood Video To The Blockbuster which is 1031. We want to show you what is Netflix and what’s cool about Netflix Deferred Sales Trust is it works for all of those assets plus public stock private sock plus cryptocurrency.

I want to reverse about four months ago, we got a call from one of our strategic alliances. She’s a financial advisor in the Bay Area. She has a couple that she’s working with. This married couple to kids dog. He works in Silicon Valley for the last 20 years. She’s an attorney, they’re working really hard, long hours, for many, many, many years. She was smart enough to buy an Ethereum and Bitcoin at very, very early adoption of these assets. Now, he understands these assets, just like we understand real estate, Mitch. He really gets it. He had the conviction to hold. In fact, he never sold and in 2017, it raised up to about $6 million. He had put about, I think around 50 to $75,000 raised up to 6 million. His wife says “sell, sell, sell.” Like she didn’t get it as much. Cryptocurrency especially at that time, it’s still really new. He’s like, “No! there’s a future for it.”  She’s like, “Well, we can retire, we can be done, we can go invest in real estate and different investments securities meet a little more diversified.” As far as she knows that the money’s out in outer space or in the internet somewhere. She didn’t know she did it with $6 million. He didn’t sell was because he didn’t have a Tax Deferral Strategy. He was in California, and he’s looking at like, 30% of just being wiped out of all that gain. As he was looking for the Tax Deferral Strategy, the market crashed. His six went to I don’t know, maybe one or two. He was like, “Ah! I’m gonna hold.” Rewind about six months ago, it raised all the way back up to new record highs. But even beyond that, it went up to $13 million. I’m sitting down with them. They live in the Oakland Hills, a beautiful home overlooking the whole San Francisco Bay, and I sit down with them.




Closed Deal Story


Selling Bitcoin, Ethereum Capital Gains Tax-Deferred Using the Deferred Sales Trust


I believe that is where we’re at with cryptocurrency’s current marketplace. We closed the first Bitcoin and Ethereum case for $5 million and helped the client defer around $1.5M in capital gains tax. Now we’re getting a wave of individuals who are finding us. You might be finding us right now.

One of the biggest challenges with folks who are selling cryptocurrency is they want to be able to diversify, they want to be able to time the real estate market and or even the crypto market, they want to be able to have some liquidity, some cash flow, and so part of this vision is taking helping our clients who are in cryptocurrency, buy an investment, real estate, all tax-deferred, using the Deferred Sales Trust, also invest with Jake Mellor as the financial advisor to in a diversified investment grade security or start a business. Whatever the outcome that you want to do. Why is it that you’re investing with any type of asset? What if you could sell high, diversify, and buy back in whenever you’d like to? This is what we’ve already done and we’re doing, we’ve already proven it.

Read The Full Case Study Here



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