Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Lose big on crypto? Here's how to reduce the sting

Lose big on crypto? Here's how to reduce the sting

It's been a tough year for crypto investors as they've watched the price of their digital assets plummet.

Bitcoin, for example, is trading about 65% off its all-time high, which it hit only nine months ago.

If you bought a cryptocurrency when it was on the rise and sold your holding this year -- or are considering doing so -- there are at least a couple of ways you may be able to reduce the sting of your loss.

Using a loss to your advantage


You can use a capital loss in crypto to offset any capital gain you've realized this year -- even if it comes from the sale of another security or another property, such as a stock or a house.

For example, say you bought bitcoin at $50,000 in February 2021, then sold it recently at $24,000, which is roughly where it is trading today. You'd have a long-term capital loss of $26,000, because you held the investment for at least a year.

Then say you also booked a $10,000 capital gain by selling a long-held stock in a taxable brokerage account (i.e., not a tax-deferred account like a 401(k) or IRA).

You can fully offset the tax owed on your $10,000 capital gain with $10,000 of your capital losses on your 2022 tax return. In addition, you also can use your losses to offset the tax owed on up to $3,000 of your ordinary income this year.

Whatever losses that you don't use up this year, you can still use in future years. So in the example above, you would use half your capital losses this year ($13,000) to offset your $10,000 capital gain and $3,000 in income. Then you can carry forward the other half of your losses into future years. And if you have a year where you don't have any gains to offset, you can still use $3,000 of your losses to offset taxes on $3,000 of your income.

But when you die, your losses will die with you for tax purposes. You can't bequeath them for someone else to use. "Your heirs don't inherit the losses," said Larry Pon, a California-based certified public accountant and certified financial planner.

Wash-sale rules don't apply to crypto ... yet


Unlike with stocks, you can choose to sell a losing crypto asset to claim the tax loss but then buy the very same asset again around the time of the sale.

Here's why: For tax purposes, crypto assets are classified as property, not securities. So while you can use capital losses from both types of assets to offset one's gains, there is another tax rule that governs only securities and does not apply to crypto assets. At least not yet.

It's called the wash-sale rule. The IRS will disallow any capital loss you claim on the sale of a stock or security if you repurchase it or something "substantially identical" to it within 30 days before or after the sale.

There is no comparable rule for crypto. "Although the IRS has not specifically addressed the area, most practitioners are of the view that the wash-sale rules generally do not apply to crypto. The IRS has stated that they treat virtual currency as property, while the wash-sale rules apply to stocks and securities," said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.

So if you book a loss but still believe that the same crypto asset holds promise long-term, you may repurchase it at any time. Even on the very same day you sell.

"If you sell [a cryptocurrency] and rapidly buy it back, that will enable you to tax loss harvest without triggering the 30 days rule," said Kell Canty, CEO of crypto tax software provider Ledgible.

This trading advantage over securities may not last forever. Lawmakers have already proposed expanding the wash-sale rule to cover crypto and other assets in proposed legislation. But the chances of that expansion happening this year are very low.

"This rule may be changing in the future, but for 2022, crypto assets are not subject to the wash-sale rules," Pon said.

One exception may be if you have indirect exposure to crypto assets, such as through an exchange-traded fund that trades on a stock exchange, such as the ProShares Bitcoin ETF (BITO).

"Trading on a stock exchange could permit the IRS to treat such crypto as a security and [therefore] subject to the wash-sale rules," Luscombe said.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Budapest Central European Fashion Week Kicks Off
U.S. Celebrates Labor Day
Hungarian National Team Captain Scores Epic Goal
EU is getting aggressive: Four AfD Candidates Die Unexpectedly Ahead of North Rhine-Westphalia Local Elections
Japanese Customer Sways from VW to BYD after “Unbelievable” Test Drive amid Dealership Expansion
Nestlé Removes CEO Laurent Freixe Following Undisclosed Relationship with Subordinate
Pickles are the latest craze among Generation Z in the United States.
Giuliani Seriously Injured in Accident – Trump to Award Him the Presidential Medal of Freedom
Deadline Day Delivers Record £125m Isak Move and Donnarumma to City
Nvidia Reveals: Two Mystery Customers Account for About 40% of Revenue
Woody Allen: "I Would Be Happy to Direct Trump Again in a Film"
Lula and Putin Hold Strategic BRICS Discussions Ahead of Trump–Putin Summit
White House Eyes Budapest for Peace Talks
Cave Diving Beneath the Streets of Budapest
Another American Restaurant Chain Opens in Budapest
Hungarian Opposition Politician Supports Ukrainian Commander
Opposition Leader Threatens Media Outlets
American Airlines Adds New Flights to Budapest
F1 Hungarian Grand Prix Wraps Up
WhatsApp is rolling out a feature that looks a lot like Telegram.
U.S. Trade Representative says Washington still negotiating trade deals after court rules tariffs illegal
Von der Leyen says Europe drawing up 'precise' plans to send troops to Ukraine
Kremlin accuses Europe of hindering Trump’s peace efforts in Ukraine
×