Confusion surrounding crypto tax law in U.S. after $5 Billion in losses reported

16 Jan, 2019
by Colin Hawkins
News
Confusion surrounding crypto tax law in U.S. after $5 Billion in losses reported

As cryptocurrency investors suffered massive losses as BTC and other crypto fell by 80-90% in 2018, they should be liquidating assets to lock in realized losses that can be claimed on taxes. Offsetting other aspects of their tax bill, or maybe even leading to a return.

According to data from Credit Karma, apparently this was not what was happening. Only 34% of losses that crypto investors had in the U.S. for 2018 have been realized. With this data one can make the inference that most Americans may not understand the laws surrounding crypto, and that you can claim your losses through taxes.

Losses related to crypto investments in 2018 total $5 billion, according to Credit Karma. Only a third of these losses are realized losses. When investing in crypto in the U.S. a cost basis is established for tax purposes. Selling an asset also triggers a taxable event. Depending on how much that asset appreciates or depreciates, or in the sake of crypto, how the market is doing, determines what the individual that holds the asset, is responsible for with their taxes. If their asset is never sold the gains or losses are only paper gains or losses, therefore they cannot be claimed on taxes. Due to the data supplied, those living in the U.S. do not realize that their crypto assets must be sold in order for it to be a taxable event.

Jagjit Chawla, A Credit Karma general manager gives stats backing up why Americans do not realize they can get a tax reduction for their losses:

“Even though those who sold their bitcoin at a loss can typically claim a tax deduction we found that before taking our survey, 61% of respondents who lost money on bitcoin didn’t actually realize they could get a tax deduction for bitcoin losses.”

In the United States crypto is also treated as property, therefore they are subject to capital gains tax, much like real estate. This tax varies by income levels, and can also depend on how long you have held the asset. If U.S. citizens locked in crypto losses they could claim up to $3,000 in losses. Anything over the $3,000 can be carried over to the next year to offset potential gains tax on the next year's tax bill. Of course if you have any uncertainties with how you should file taxes with crypto, it is highly recommended that you should speak to a certified CPA that is well-versed in crypto, and all the tax hoops you need to jump through when filing.

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Read more about: Bitcoin (BTC)

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