Can you amortize crypto losses in taxes?

For the most part, cryptocurrency investors have been hit hard throughout 2022. Not only have most cryptocurrencies fallen in value since the beginning of the year, but along the way several major cryptocurrency platforms have filed for bankruptcy.

Celsius was one of them, and investors took it very seriously. The Celsius platform was well known for offering the highest yields on cryptocurrency savings accounts over the past few years. The company filed for branch bankruptcy in July 2022 due to his $1.2 billion deficit on its balance sheet.

Then there was FTX, which made headlines when it completely collapsed in early November 2022. This crypto trading platform is currently under investigation for fraud. Former CEO Sam Bankman-Fried has just been arrested in the Bahamas for weeks. Before.

With all this in mind, you may be wondering if you can write off some of your cryptocurrency losses when you file your 2022 tax returns next year. The answer is maybe.

I reached out to several tax experts and accountants to get their insights on when cryptocurrency losses can be written off.

Crypto losses may be amortized If you sold

Andy Phillips, Head of Tax Research Institute at H&R Block
SQ
says crypto investors who sold crypto at a loss in 2022 will be able to claim the loss on their tax returns.

They can fully offset or cut investment gains, he said, adding that some taxpayers may be able to deduct up to $3,000 of their regular income if they still have losses. .

“You can’t claim the rest of your losses this year, but you can carry them over to future years and claim them on future tax returns,” he said.

Still, it’s important to remember that you must be aware of your loss for this to apply.

Phillips adds that investors who hold cryptocurrencies without selling them typically cannot deduct the loss in value until they sell the cryptocurrency. This is true even if you hold crypto that has little or no value at the moment.

loss due to theft

Phillips said there are circumstances in which losses from theft can lead to tax deductions. Specifically, if the loss of cryptocurrency is related to theft or criminal activity by the organization that invested the money, the taxpayer may be able to claim a deduction for the theft loss.

However, legal action must be taken against the person who committed the theft and other requirements must be met in order for theft damage to be available.

Obviously, the rules regarding theft loss of income-generating property are: incredibly complicatedWith that in mind, H&R Block recommends working with a tax professional if you find yourself in an unfortunate situation like this.

Cryptocurrencies are exempt from wash sale rules

As we look forward to next year’s tax returns, there are some crypto-specific rules you should know, according to Betterment financial advisor and accountant Eric Bronnekant.

As Phillips noted, cryptocurrency losses (along with other capital losses) can be used to offset capital gains on stocks, bonds, mutual funds, ETFs, real estate, etc.

However, virtual currencies are not considered securities and are not eligible for wash sales. This means that an investor could sell a cryptocurrency at a loss in his 2022 and buy the same cryptocurrency within 30 calendar days and be able to deduct that loss on his tax return. means that there is

This would allow an investor to sell the cryptocurrency at a loss, use the loss for a profit or $3,000 in income, and buy it back quickly, Bronnenkant said. However, he adds that future legislation could eliminate this tax strategy, as the issue is gaining the attention of Congress.

Don’t let crypto ruin your tax returns this year

If you’ve read the above and are still unsure if you can write off your cryptocurrency losses on your tax returns, it’s probably best to get professional help. The same applies if there is a virtual currency that is

If a cryptocurrency exchange stops withdrawals, you may not have seen any losses yet, but talking to a tax expert who has experience with cryptocurrencies can help you figure out the best next steps.

That said, there are other things you can do to ensure that next year’s cryptocurrency doesn’t screw up your taxes. For example, Lisa Greene-Lewis, her CPA and tax expert at TurboTax, says investors should start by making sure they have the right cost base for cryptocurrencies and don’t forget losses they can offset. says it can.

From there, you can work with a tax expert or use more sophisticated tax software to prepare your returns. For example, according to Greene-Lewis, TurboTax Premier software allows crypto investors to easily import crypto information from digital asset exchanges and wallets (up to 20,000 crypto transactions at a time). From there, TurboTax guides customers to use any unrealized capital losses they may have incurred in previous years, helping them improve their tax results and lower their outstanding taxes.

CPA says Intelligent Tax Optimization removes the work of tracking down the exact missing cost base value and “improves capital gains and I assure you of Ross’ accurate reporting,” he added.

Whether you file your own taxes with the help of software or hire a professional, you should try to write off your cryptocurrency losses wherever legally possible. This means sorting out and fully accounting for cryptocurrency losses — no matter how painful it may be.