If you lost money on Bitcoin or other cryptocurrencies, you may be eligible for a tax deduction. Sometimes, what the IRS taketh away, the IRS also giveth.
This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
How Are Cryptocurrencies Taxed?
Your cryptocurrency trades are subject to capital gains taxes just like stock trades are. If you sell higher than you bought, you have a capital gain. If you sell lower than you bough, you have a capital loss.
See these tax calculators to estimate your capital gains and income taxes.
How to Claim a Capital Loss if You Lost Money on Bitcoin
Your capital losses are deductible as follows.
- They offset your capital gains dollar for dollar. If you have a capital gain on another cryptocurrency, stock trades, ETFs, or other investments, your capital loss reduces it. Example: $4,000 capital gain and $2,000 capital loss = $2,000 remaining capital gains subject to tax.
- If your capital losses are more than your capital gains, you can deduct up to $3,000 against your ordinary income. Example: $2,000 capital gain and $5,000 capital loss = $0 in capital gains subject to tax and a $3,000 deduction against your salary or other income.
- If your excess capital losses are greater than $3,000 for single or joint filers ($1,500 if filing separate), you can carry over the remaining amount to future years. Example: $2,000 capital gain and $6,000 capital loss = $0 in capital gains subject to tax, $3,000 current year deduction against ordinary income, and $1,000 capital loss that carries over to the next year.
- If you have a carryover, repeat step 1.