Hey everyone, after an extended break from PUBLISH0X I'm going to start up writing again after the new year. However I did want to put out a quick note that if you're in the US and are currently holding crypto at a loss you have a chance before the end of the year to sell that asset and claim the capital loss against your taxable income for 2021.
Capital Gains vs Losses
For the new folks, cryptocurrencies are classified as property by the IRS which means that they qualify for capital gains taxes when the crypto is 'disposed'. This could mean selling your coins for fiat currency, trading them for another crypto, or using them to make a purchase. The difference between how much you paid for the crypto when you first got it and how much it was worth when you dispose of it is your gain/loss. Note that any coins gained through mining, staking, interest, or even airdrops are considered personal income and are taxed at their value when received. I believe this would also include the rewards earned here as they could be considered as payment or bonuses for work done.
Two things to note here:
For one taxes only come into play if you've actually traded out your crypto for something else. If you've bought crypto and just held it all year or moved it between wallets than you haven't had a taxable event and therefore have unrealized income/loss and shouldn't have to pay a tax on.
Two, how long you've had the coins matters a great deal when it comes to how much tax you will pay. If you possessed it for more than a year than any gain/loss will fall under Long Term Capital Gains tax brackets, which depending on your overall income could mean you owe no taxes at all! If however you bought and sold the coins within a year's time then you're looking at Short-Term Capital Gains taxes which are usually equal to your normal income tax bracket. Any loss taken will apply first to any gains in the same category (Long to Long, Short to Short), then roll over to the other category and finally your regular income. You can claim up to $3000 in losses in one year, but if you happen to have more you'll be able to roll over those losses into the following year.
At this time it doesn't looks like the wash sale rule, where there has to be more than 30 days between selling an asset and repurchasing it or something essentially similar, applies to cryptocurrency but I know there has been discussion of it in Congress so you may wish to double check. However if you've got some red on your board that's mocking you and you think it won't see much movement for a while (looking at you $AMPL), it might be worth your while dumping it for the tax write-off now and buying back in after a month or so when hopefully the market will figure out what it wants to do. If not it could be useful to keep this in mind once we reach this time of year in 2022.
If you want to read up more on this subject here are some links that I've found helpful when trying to decide how to handle my taxes from crypto going forward:
https://cryptotrader.tax/blog/how-to-handle-your-bitcoin-and-crypto-losses-for-tax-purposes
https://koinly.io/blog/crypto-airdrop-tax/
As always, please read up and examine your own situation before making any financial decisions or seek professional financial advice if you are still not sure what the right move is for your assets. Have a Happy New Year and I'll talk to you soon!
