(Bloomberg) — There may be a silver lining for crypto investors who sold at huge losses during the recent market turmoil: a quirk in the tax code that lets people pay less to the government down the road. .
Unlike stocks and bonds, cryptocurrencies are not subject to federal regulations that prevent people from claiming a deduction if they sell an asset at a loss and then buy a similar or similar asset within 30 days before or after the sale. Huh. According to crypto tax filing software firms, this offers a unique opportunity for those looking for future tax savings to sell and again buy more virtual tokens at affordable prices.
“This is a good time to store your capital losses, because when you exit the market at a huge profit at a future date, you can use these losses,” said Shehan Chandrasekhar, head of tax strategy at software provider CoinTracker. can.” Chandrashekhar, who goes by @TheCryptoCPA on Twitter, has posted in detail about the strategy he calls “tax loss cropping”.
2/ When to tax the loss crop?
It’s a great time for TLH in crypto and stocks right now.
Markets are well below ATH values.
—Sheehan (@TheCryptoCPA) 22 January 2022
After rising 60% in 2021 – and touching an all-time high of nearly $69,000 in November – bitcoin is down 20% this year to under $37,000. The impact of crypto’s January turmoil will not be visible on the investor’s 2021 tax return. However, the thousands of crypto investors who piled into the asset class last year must account for those investments as they file their returns during the next few months.
According to crypto tax software company Taxbit, investors who sold crypto at a loss and then bought similar assets at a lower price – a move that some refer to as wash sales – are free to take advantage of the tax strategy. Some Democrats tried to plug loopholes in a bill that cost nearly $2 trillion late last year.
“Our position at the company is: as of now writing, the wash sale rules do not apply,” said Michelle O’Connor, vice president of marketing at Taxbit. “So when they are not in place, and the markets are just tanking, come in, optimize, reset the cost position and take advantage of this legal tax strategy.”
O’Connor said since late last week TaxBit has seen a huge increase in people using online tools that help customers take advantage of losses. She also refers to this move as “tax-loss harvesting.”
Under the strategy, investors can use their losses to offset any gains in a given year. If they don’t have benefits to offset, they can deduct up to $3,000 in losses from ordinary income. Capital losses in excess of that amount can be used to reduce tax bills in subsequent years.
