Here’s How to Report 2022 Crypto Losses on Your Tax Return

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Luke MacGregor | Bloomberg | Getty Images

The latest crypto rally may be good news for digital currency investors. But if you’re still recovering from last year’s losses, it may be possible to get tax relief on your 2022 return.

The crypto market plunged nearly $1.4 trillion in 2022 after a series of bankruptcies, liquidity issues, and the collapse of FTX, one of the biggest crypto exchanges.

If you’re itching to claim a crypto loss on your taxes, there are a few things to know, experts say.

Learn more about smart tax planning:

Here’s a look at some other tax planning news.

Offsetting Gains With Crypto Losses

One of the silver linings of plummeting assets is the ability to take advantage of tax loss reaping or use losses to offset gains.

If you sold crypto at a loss, you can subtract that from other portfolio profits, and once the losses exceed the gains, you can cut up to $3,000 from your regular income, Lisa Greene-Lewis explained. , Chartered Accountant and Tax Expert at TurboTax.

Additionally, there is currently no “wash sell rule” for crypto. The rule blocks tax relief if you buy a “substantially identical” asset 30 days before or after the sale.

You calculate your loss by subtracting your selling price from the original purchase price, called the “basis,” and report the loss on Schedule D and Form 8949 of your tax return.

If your crypto losses exceed other investment gains and $3,000 in regular income, you can use the rest in subsequent years, Greene-Lewis said. But it’s easy to lose sight of carryover losses and miss future opportunities to cut taxes, she warned.

Wait to claim bankruptcy losses

With multiple crypto exchanges and platforms collapsing in 2022, you may have lingering questions about reporting losses on your taxes this season.

CPA and tax lawyer Andrew Gordon, president of the Gordon Law Group, said there are generally two concerns: possibly claiming a loss for missing deposits and reporting income from rewards or interest.

It may be a good idea to file for an extension if you hold large holdings on one of these platforms to see if there is more clarity.

Andre Gordon

President of Gordon Law Group

In some cases, you can claim a capital loss or bad debt deduction and deduct what you spent on the asset. But it must be a “total loss” to claim it, Gordon said. If you end up recovering, say, 10% after claiming a bad debt deduction, that 10% becomes regular income.

Although there are several options for 2022, he generally tells customers to “wait and see” what happens. “It may be a good idea to file an extension if you have significant holdings on one of these platforms to see if there is more clarity,” he said.

You must report crypto even without forms

Since 2019, the IRS has included a crypto yes or no question on the first page of the tax return. The agency also pursued client cases by sending court orders to multiple exchanges.

“The IRS has over five years of taxpayer information,” Losi said, so if they find out you have crypto and haven’t reported, you could be targeted, he said. he declares.

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