Something to Know About Cryptocurrencies
IRS is focusing on crytocurrency transactions. You are required to report crytocurrency transactions on your personal tax return as a taxable gain or loss. This post is about planning opportunities. Cryptocurrencies are classified as “property” rather than as securities. The wash-sale rule does not apply if you sell a cryptocurrency holding for a loss and acquire the same cryptocurrency before or after the loss sale. You just have a garden-variety short-term or long-term capital loss depending on your holding period. No wash-sale rule worries.
This favorable federal income tax treatment is consistent with the long-standing treatment of foreign currency losses.
That’s a good thing, because folks who actively trade cryptocurrencies know that prices are volatile. And this volatility gives you two opportunities:
Let’s take a look at the harvesting of losses:
Here’s what Lucky did:
Be alert. Losses from crypto-related securities, such as Coinbase, can fall under the wash-sale rule because the rule applies to losses from assets classified as securities for federal income tax purposes. For now, cryptocurrencies themselves are not classified as securities.
Planning point. If you want to harvest losses, make sure you hold a cryptocurrency and not a security.
If you would like to discuss cryptocurrencies, please schedule an appointment. Our team will be happy to help.
Linda Hamilton | 09/01/2021