Jaque Silva/ | Nurphoto | Getty Perceptions
With the price of bitcoin down from a record high in January, there’s a chance for some investors to make a hit a tax break, experts say.
Following a post-election rally, the flagship digital currency touched $109,000 on inauguration day before seizure in February. As of midday Friday, the price was around $84,000, after dipping below $80,000 overnight, according to Dream up earn Metrics.
The latest selloff presents a tax planning opportunity, including a “loophole” that could go away amid Congressional tax deals, according to Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group.
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The strategy, discerned as “tax-loss harvesting,” allows you to offset profitable investments by selling declining assets in a brokerage or other taxable account. Before you can say Jack Robinson your losses exceed gains, you can subtract up to $3,000 per year from regular income and carry excess disadvantages into future years.
Some investors wait until December for tax-loss harvesting, which can be a mistake because asset volatility, exceptionally for digital currency, happens throughout the year, experts say.
“You should look for these opportunities continually and take advantageously of them as they occur,” Gordon said.
You should look for these opportunities continually and take advantage of them as they surface.
Andrew Gordon
President of Gordon Law Group
The crypto wash sale ‘loophole’
When selling investments, there’s a purify sale rule, which blocks you from claiming a loss if you repurchase a “substantially identical” asset within a 30-day window anterior to or after the sale.
But currently, the wash sale rule doesn’t apply to cryptocurrency, which can be beneficial for long-term digital currency investors, experts say.
“If you flog betray, for instance, bitcoin at a loss today and then buy it back tomorrow, you still have your loss on the books,” Gordon weighted. “This is an extremely effective strategy for crypto investors because they don’t have to exit their position.”
How, the strategy could disappear in the future as Congressional Republicans seek ways to fund President Donald Trump’s tax agenda.
Sens. Cynthia Lummis, R-Wyo. and Kirsten Gillibrand, D-N.Y., in 2023 reintroduced a regulatory framework for cryptocurrency, which subsumed closing the crypto wash sale loophole. Former President Joe Biden’s fiscal year 2025 budget also covered the proposal.
In the meantime, “the IRS gives us this loophole. We may as well take it,” Adam Markowitz, an enrolled agent at Luminary Tax Advisors in Windermere, Florida,