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If you’re like many people, you may be wondering if you can claim crypto losses on your taxes. The answer is yes, you can! Here’s how to do it.
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Introduction
If you sold your cryptocurrency for a loss, you might be able to claim that loss on your taxes. In order to do so, you’ll need to file a capital losses tax return.
When it comes to capital gains and losses, the IRS views cryptocurrencies as property, not currency. That means your gains and losses will be treated like those from selling stocks or other investments.
If you lost money on your cryptocurrency investment, you might be able to use that loss to offset other capital gains on your taxes. You can also carry forward any unused capital losses to offset gains in future years.
What are cryptocurrency losses?
Cryptocurrency losses occur when the market value of your digital assets decreases. This can happen for a variety of reasons, including market volatility, hacks, or fraud. If you sell your crypto for less than you paid for it, you may be able to claim a capital loss on your taxes.
Cryptocurrency losses can be either short-term or long-term. Short-term losses occur when you sell your crypto within one year of purchasing it. Long-term losses occur when you hold onto your crypto for more than one year before selling.
In order to claim a loss, you will need to calculate your basis, which is the original cost of the cryptocurrency plus any fees or other costs associated with purchasing it. For example, if you bought 1 Bitcoin for $10,000 and paid $100 in fees, your basis would be $10,100.
If you sold that Bitcoin for $9,000, you would have a short-term loss of $1,100 ($10,100 – $9,000). If you held onto the Bitcoin for more than a year before selling it for $9,000, you would have a long-term loss of $1,000 ($10,000 – $9,000).
Capital losses can offset other capital gains on your taxes. For example, if you had a short-term gain of $2,000 from selling another cryptocurrency and a short-term loss of $1,100 from selling Bitcoin, your net gain would be $900 ($2,000 – $1,100). You would only owe taxes on the $900 gain.
Can I claim cryptocurrency losses on my taxes?
The short answer is yes, you can. The IRS treats cryptocurrency as property, so you can deduct losses in the same way that you would for other investments, like stocks or real estate.
In order to claim a loss, you’ll need to have sold or traded your crypto during the tax year in question. You can’t deduct losses if you simply lost your private keys or if your coins were stolen.
The process for claiming losses is similar to other forms of investment. You’ll need to calculate your basis (the cost of the crypto when you purchased it), then subtract any fees or commissions associated with the sale. The resulting number is your capital gain or loss, which you can then use to adjust your taxes owed.
If you have questions about how to calculate your basis or whether you’re eligible to claim a loss, it’s best to consult with a tax professional who is familiar with cryptocurrency.
How do I claim cryptocurrency losses on my taxes?
In order to claim a capital loss for taxes, you must have sold or traded your cryptocurrency during the tax year. If you held the cryptocurrency for less than a year, it would be considered a short-term capital gain or loss and would be taxed as ordinary income.
Here are the steps you need to take in order to claim cryptocurrency losses on your taxes:
1. Gather all of your cryptocurrency transaction records for the tax year in question. This includes any exchanges or wallets that you used during the year.
2. Calculate your total gains and losses for the year. If you have multiple transactions, you will need to calculate your gain or loss for each one.
3. Deduct any losses from your total gains to arrive at your net gain or loss for the year.
4. Include your net gain or loss from cryptocurrency on your tax return, using Schedule D if you have a net gain, or Form 8949 if you have a net loss.
What if I don’t have any documentation of my cryptocurrency losses?
Unfortunately, if you do not have any documentation of your cryptocurrency losses, you will not be able to claim them on your taxes. The IRS requires that investors keep meticulous records of all their investment activity in order to claim any losses. This means that you will need to have a record of every purchase and sale you made during the year, as well as the prices you paid for each transaction.
Conclusion
Assuming you have a capital loss, you can deduct up to $3,000 per year from your ordinary income. If your losses are more than your gains, you can carry the losses forward to future years.
