After a tough year for crypto, here’s how to handle losses on your tax return

One of the silver linings of declining assets is the opportunity to profit tax loss harvestingor using losses to offset gains.

If you sold the cryptocurrency at a loss, you can deduct it from other portfolio gains, and once the loss exceeds the gain, you can deduct up to $3,000 from regular income, according to a certified public with TurboTax. Accountant and tax expert Lisa Green-Lewis explained.

Also, there is currently no “wash sale rulesFor crypto. The rule blocks the tax break if you buy a “substantially similar” asset 30 days before or after the sale.

You calculate your loss by subtracting your selling price from the original purchase price, which is known as your “basis,” and report the loss. schedule d And Form 8949 on your tax return.

Green-Lewis said that if your crypto losses exceed other investment gains and regular income of $3,000, you can use the rest in later years. But it’s easy to lose track of carryover losses and miss future opportunities to reduce taxes, she warned.

with many crypto exchange And platform fall In 2022, you may have lingering questions about reporting the loss on your taxes this season.

CPA and tax attorney Andrew Gordon, president of Gordon Law Group, said there are generally two concerns: claiming the loss of a possibly missing deposit and reporting income from the prize or interest.

In some cases, you may be able to claim capital loss, or the bad debt deduction, and write down what you spent on the property. But it would have to be an “absolute loss” to claim it, Gordon said. if you stop receiving, Say, 10% back after claiming the bad debt deduction, that 10% becomes regular income.

While there are several options for 2022, he is generally telling customers to “wait and see” what happens. “If you have significant holdings on any of these platforms, it may make sense to file an extension to see if there is further clarity,” he added.

Since 2019, the IRS has included a Yes-or-No Questions About Crypto on the first page of the tax return. The agency has also searched the records of customers sending court orders for multiple exchanges.

“The IRS has more than five years of information on taxpayers,” Losey said, “so if they find out you have crypto and you’re not reporting it, you can be targeted,” he said. .