A deteriorating macroeconomic climate and the collapse of industry giants like FTX and Terra have weighed on Bitcoin’s price this year.
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Crypto losses can offset investment gains
One of the silver linings of declining assets is the ability to take advantage of tax losses or use losses to offset gains.
If you sold crypto at a loss, you can deduct that from other portfolio gains, and once losses exceed gains, you can take up to $3,000 from regular income, explained Lisa Greene-Lewis, a chartered accountant and tax expert at TurboTax .
Also, there is currently no “wash sale rule” for crypto. The rule blocks the tax break if you buy an “essentially identical” asset 30 days before or after the sale.
You calculate your loss by subtracting your sale price from the original purchase price, known as the “base,” and report the loss on Schedule D and Form 8949 on your tax return.
If your crypto losses exceed other investment gains and $3,000 in regular income, you can use the rest in subsequent years, Greene-Lewis said. But it’s easy to lose sight of transmission losses and miss future tax-cut opportunities, she warned.
“Wait and see” before claiming bankruptcy losses
With multiple crypto exchange and platform crashes in 2022, you may have lingering questions about reporting losses on your taxes this season.
CPA and tax attorney Andrew Gordon, president of the Gordon Law Group, said there are typically two concerns: potentially claiming a loss for missed deposits and reporting income from rewards or interest.
It may be worth applying for an extension if you have had significant holdings in any of these platforms to see if there is further clarity.
President of the Gordon Law Group
In some cases, you may be able to claim a capital loss or bad debt and write off what you spent on the asset. But it has to be a “complete loss” to claim it, Gordon said. If you end up getting, Let’s say you return 10% after you claim a bad debt deduction, that 10% becomes regular income.
Though there are multiple options for 2022, he generally tells customers to “wait and see” what happens. “It may be worth applying for an extension if you’ve had significant holdings in any of these platforms to see if there is further clarity,” he said.
You must report crypto — even if you don’t receive tax forms
Since 2019, the IRS has included a yes-or-no question about crypto on the front page of tax returns. The agency has also tracked customer data by sending court orders to multiple exchanges.
“The IRS has more than five years of information on taxpayers,” Losi said. So if they find out you have crypto and haven’t come forward, you could be targeted, he said.