2022 Crypto Losses: Here’s How to Report On Your Tax Return!

Crypto Losses 

The cryptocurrency market had a rocky 2022, with losses reaching nearly $1.4 trillion due to bankruptcies, liquidity issues, and the collapse of exchanges like FTX. However, there may be a silver lining for investors still recovering from those losses – the opportunity to claim a tax break on their 2022 return.

Crypto Losses 
It’s important to track your carryover losses and report them for you to keep tract of your crypto losses. (PHOTO: PYMNTS.com)

According to a published article in CNBC, to leverage the tax-loss harvesting strategy, investors can offset their cryptocurrency losses with other portfolio gains. Once their losses exceed their gains, they can trim up to $3,000 from regular income, according to tax expert Lisa Greene-Lewis. Unlike traditional investments, there is no “wash sale rule” for crypto, which means investors can claim the tax break regardless of whether they buy a “substantially identical” asset within 30 days of the sale.

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Track your Carryover Losses!

However, it’s important to track your carryover losses and report them on Schedule D and Form 8949 on future tax returns. Investors may also want to wait and see what happens with the various crypto exchange and platform collapses before claiming bankruptcy losses. Tax attorney Andrew Gordon recommends filing an extension if investors had significant holdings on any of these platforms to see if there’s further clarity.

Whether they receive Form 1099-B from digital currency brokers, investors must still disclose their cryptocurrency activity on their tax returns. The IRS has been pursuing customer records from several exchanges and has over five years of information on taxpayers, so failure to report could result in being targeted.

Overall, the recent crypto rally may be good news for some investors, but for those still recovering from last year’s losses, tax-loss harvesting could provide a much-needed break. It’s important to offset gains with crypto losses, report carryover losses, wait to claim bankruptcy losses and disclose all crypto activity on tax returns to avoid being targeted by the IRS.

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