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  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
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          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
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          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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          • California Department Of Tax And Fee Administration – CDTFA
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          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
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        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
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    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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Can You Write Off Crypto Losses on Taxes?

Can You Write Off Crypto Losses on Taxes

Crypto Losses on Taxes

The cryptocurrency and NFT (non-fungible token) booms pushed markets to dizzying highs and devastating lows. What was once seen as a stellar investment now appears to be on the decline, and some people are considering getting out of the crypto market entirely. Selling at a loss, however, is an unpleasant prospect. As such, crypto investors may find themselves wondering if they can write off crypto losses on taxes. The answer, luckily, is yes. Losses on cryptocurrency and NFTs can be written off either to offset capital gains or deduct up to $3,000 from one’s yearly income tax.

When Can You Write Off Losses?
At present, the IRS treats cryptocurrency and NFT, collectively referred to as “crypto,” as property, the same as any other stock. As such, the value of a cryptocurrency is only realized—and therefore only taxable—after the crypto is sold, traded, or spent. To write off crypto losses on taxes, a particular coin or NFT must be sold, traded, or spent at a loss. Merely holding crypto that has decreased in value does not allow for tax write offs. Nor does selling the currency at a loss and buying it back: this tactic is considered a ‘wash sale’ by the IRS and unfavorably looked upon. For additional information on cryptocurrency and NFTs, visit the RJS LAW Blog.

How Do You Write off Crypto Losses on Taxes?
After realizing a loss on a particular crypto asset by selling, trading, or purchasing something with the crypto, you will list that transaction on your taxes using Form 8949 Sales and Other Dispositions of Capital Assets and Form 1040, Schedule D. If the currency was mined or minted, this should be disclosed either on Schedule C (for businesses) or Schedule 1 (for hobbyists).

These forms will all require you to list the basis, or initial price, of your crypto. A typical transaction for an NFT may look something like this:

  1. Use United States Dollars (USD) to buy 1 Ethereum (ETH) at $1,500 plus a $5 transaction fee,
  2. Buy an NFT for 1 ETH immediately,
  3. At some point later, sell the NFT for .5 ETH
  4. Convert the .5 ETH back to USD. ETH is now trading at $1000.

The bases to be accounted for are the initial price of the ETH, the initial price of the NFT, and the price of ETH when the NFT was sold. Each transaction is considered a taxable event, so any loss of value may therefore be written off. Assuming the ETH transactions took place directly before and after the sale of the NFT, it is likely that the purchase of the NFT and the final conversion of ETH to USD will be considered capital gains (because an asset was sold or exchanged for profit) and the sale of the NFT will be considered a loss.

Once you have calculated your basis, you can determine if you are able to claim crypto losses on taxes. If you still made some profits, as in the scenario above, you could use the loss to offset capital gains. You may also use losses in crypto to offset other capital gains. If your general capital losses outstripped your gains, you may use the losses to write off up to $3,000 per year of personal income. If your losses are greater than $3,000, the amount may be carried over and applied to subsequent tax years.

Conclusion
Taking losses on an investment is never fun. Luckily losses in crypto, like those in other investments, may be written off. If you have questions on how to write off crypto losses on taxes, RJS Law provides Tax Planning services which can help individuals and businesses navigate the complexities of both the Internal Revenue Code and local tax laws.  Contact RJS LAW online or at 619-595-1655 to arrange a free consultation.

Written by Zachary K. McDaniel

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Filed Under: Cryptocurrency, Cryptocurrency Taxes, Digital Assets Tagged With: CryptoCurrency, Cryptocurrency Taxes, Digital Assets

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