With a steep 72% fall in 2018, Bitcoin had a dreadful year. A huge chunk of traders, as well as investors, sold their coins for a loss. However, although it isn’t something that can get back their investments, losses of bitcoin are tax deductible. An investor or a trader can claim his losses on the tax for specific cases.
How big is the loss?
As per a report published by CreditKarma, approximately $1.7 billion was lost when investors sold bitcoin in the previous year. However, it was only half of them who would like to report these losses. Not many Americans are aware of the option that could save them money by tax deductions of the bitcoin losses. Also, there is every possibility of an audit or escalation if those losses are not reported.
So should you report the bitcoin losses?
Bitcoin is taxable since the beginning. However, on a practical scale, the scenario is different as about 800 taxpayers reported their profits between 2013 and 2015 each year. IRS similarly treats bitcoin as it does to properties. Hence, you have to pay taxes on your gains and losses similar to what you would do in case of stocks, real estate and bonds.
It surely is confusing as Bitcoin is one currency type but let’s give you an idea as to how this works. Essentially tax comes into the picture only when a person has made a profit or a loss. It means if you had traded, sold, or even spent a bitcoin, you are likely to be taxed. However, in case you had bought bitcoin and did not sell, you don’t have to pay any taxes until you make a sale. The tax bracket or applicable taxes for your gains and losses depends on the period you have kept the cryptocurrency for. It is liable to both short and long term capital gains.
The Aspect of Tax Deductible
The fact that capital gains are attached to bitcoin, you have the option to deduct your losses too. For instance, if you bought a bitcoin for $10,000 and sold it at $6,000, i.e. a loss of $4,000, you have the option to claim the loss on the tax form. This will eventually lower tax obligations. Transaction fees can also be included in the calculations. If the investment was for less than one year, it would be termed as a short term loss. You can subtract the loss against any other short term gain you made that year.
The tax provisions allow you to square off your losses against the gains to a limit of $4,000. If it is not possible to square that off in the current year, you have the option to deduct it against the future gains. For an investment made for more than a year, you can deduct the loss against any capital gain. More importantly, if you do not have any long-term capital gain, you can still deduct the loss. The limit of $3,000 and the rollover rules are applicable here as well. Keywords: are cryptocurrency losses tax deductible, how to claim crypto losses on taxes, bitcoin losses taxes, tax loss harvesting cryptocurrency, can i write off cryptocurrency losses, crypto tax software, crypto tax loss harvesting, cryptocurrency tax