Wondering how to claim your cryptocurrency losses on your taxes? Here’s a quick and easy guide on how to do it.
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The IRS considers crypto to be property, which means that any gains or losses from buying, selling, or trading crypto are subject to capital gains taxes.
For many people, the biggest downside to earning cryptocurrency is having to pay taxes on it. When you cash out your crypto for dollars (or any other fiat currency), you’re subject to paying capital gains tax—just as you would if you sold stocks or other investments. The good news is that you can also deduct crypto losses on your taxes. So if the value of your Bitcoin goes down and you sell it at a loss, you can offset other capital gains you may have had during the year.
What are Crypto Losses?
Cryptocurrency losses occur when you sell, trade, or otherwise dispose of a cryptocurrency for less than its tax basis—usually what you paid to acquire it. If you hold cryptocurrency as a capital asset, you may realize a capital gain or loss when you sell or trade it. A capital gain or loss is the difference between your tax basis in the cryptocurrency and the amount realized on the sale or trade. If your capital gain is more than $500, you must file Form 8949 with your tax return.
How to Claim Crypto Losses
If you incurred any crypto losses during the tax year, you may be able to claim them on your taxes. This can help reduce your overall tax liability for the year. There are a few things you need to do in order to claim your losses, however. First, you will need to calculate your gain or loss for each transaction. Then, you will need to file a Form 8949 with the IRS.
Gather your records
In order to claim your losses, you will need to have a record of all of your crypto transactions. This includes the date of each purchase, the amount purchased, the price per coin, and the wallet in which you stored the coins. If you made any trades, you will also need to have records of these, including the dates and amounts of each trade.
Calculate your losses
The first step is to calculate your losses. This involves figuring out how much you paid for your crypto, and how much it’s worth now.
If you sold or exchanged your crypto, you’ll need to know the date, amount, and price so you can calculate your gain or loss.
Your cost basis is the price you paid for the crypto, plus any fees or commissions.
If you didn’t sell or exchange your crypto, then your cost basis is the price on the day you disposed of it—usually when you traded it for another crypto, spent it, or transferred it to a wallet or exchange that doesn’t supportcrypto tax tracking.
The value of your crypto on the day you dispose of it is known as the fair market value (FMV). You can use CoinMarketCap.com to find historical prices.
File your taxes
If you sold your crypto or spent it on goods or services, you may have to pay taxes on the sale. The IRS considers crypto to be property, so gains or losses from selling it are taxed as capital gains.
The good news is that you can deduct capital losses on your taxes, which can help offset any gains you made. You can deduct up to $3,000 in capital losses each year, or carry them forward to future years.
Here’s how to claim your crypto losses on your taxes:
1. Gather your records.
2. Determine your cost basis.
3. Calculate your capital gain or loss.
4. File your taxes.
The IRS considers cryptocurrency to be property, and so any gains or losses made on the sale or exchange of cryptocurrency are subject to capital gains taxes. This means that if you sell or trade cryptocurrency, you may owe taxes on any gains. And if you lose money on your investment, you may be able to claim those losses as a deduction.
To claim crypto losses on your taxes, you’ll need to file a Form 8949 and report your losses as a capital loss. You can then carry forward those losses to offset future capital gains (up to $3,000 per year). If you have significant crypto losses, you may also be able to deduct them from other income sources, such as your salary or wages.
If you’re not sure how to file your crypto taxes, there are several online services that can help, including Bitcoin.tax and TaxAct. You can also speak with a tax professional to get help with your return.